Document ID: SEC-2017-0254-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2017-02-16T05:00Z

[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Page 10927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03100]

[[Page 10927]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80009; File No. SR-ISE-2016-31]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving Proposed Rule Change To Amend the Supplementary 
Material to ISE Rule 1901

February 10, 2017.

I. Introduction

    On December 22, 2016, the International Securities Exchange, LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the Supplementary 
Material to ISE Rule 1901. The proposed rule change was published in 
the Federal Register on December 30, 2016.\3\ The Commission received 
no comment letters on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79686 (December 23, 
2016), 81 FR 96532 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend the Supplementary Material to ISE 
Rule 1901, titled ``Order Protection'', in connection with a system 
migration to Nasdaq INET technology.\4\
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    \4\ The proposed rule change is being made in connection with 
the Exchange, ISE Gemini, LLC and ISE Mercury, LLC's technology 
migration to a Nasdaq, Inc. (``Nasdaq'') supported architecture 
called INET which is utilized on The NASDAQ Options Market LLC, 
NASDAQ PHLX LLC (``Phlx''), and NASDAQ BX, Inc. (collectively, 
``Nasdaq Exchanges''). See id.
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    Pursuant to Supplementary Material .02 to ISE Rule 1901, when the 
automatic execution of an incoming order would result in an 
impermissible trade-through, the Exchange exposes such order at the 
current NBBO to all Exchange members for a time period not to exceed 
one second.\5\ Currently, when a trading halt is triggered during this 
exposure period, the Exchange terminates the exposure and executes 
eligible interest.\6\ The Exchange now proposes to amend Supplementary 
Material .02 to ISE Rule 1901 to provide that if a trading halt is 
initiated during the exposure period, the exposure period will 
terminate without execution.\7\
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    \5\ During the exposure period, Exchange Members may enter 
responses up to the size of the order being exposed in the regular 
trading increment applicable to the option. See Supplementary 
Material .02 to ISE Rule 1901.
    \6\ See Notice, supra note 3, at 96533.
    \7\ The Exchange represents that the proposed treatment of 
trading halts is based on Phlx Rule 1047(c), which provides that in 
the event the exchange halts trading, all trading in the affected 
option shall be halted. See Notice, supra note 3, at 96533. The 
Exchange states that this is interpreted to restrict executions 
after a halt unless there is a specific rule specifying that such 
trades should take place. See id.
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    The Exchange states that it intends to begin implementation of the 
proposed rule change in tandem with its technology migration to Nasdaq 
INET architecture which will occur on a symbol by symbol basis.\8\ The 
proposed rule change, however, does not impact ISE alone. Because ISE 
Gemini, LLC (``ISE Gemini'') and ISE Mercury, LLC (``ISE Mercury'') 
incorporate by reference Chapter 19 (Order Protection; Locked and 
Crossed Markets) of ISE rulebook, the proposed rule change also impacts 
ISE Gemini and ISE Mercury.\9\ Moreover, ISE, ISE Gemini, and ISE 
Mercury will migrate to INET on different dates during 2017. 
Accordingly, the Exchange proposes to amend ISE Rule 1901 to state that 
the amended rule text will be implemented on a symbol by symbol basis 
for ISE Gemini in the first quarter, for ISE in the second quarter, and 
for ISE Mercury in the third quarter, of 2017, and that the specific 
dates will be announced in a separate notice.\10\
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    \8\ See id.
    \9\ See ISE Gemini, LLC Rules, Chapter 19 (Intermarket Linkage); 
ISE Mercury, LLC Rules, Chapter 19 (Intermarket Linkage).
    \10\ See Notice, supra note 3, at 96533.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, 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\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change is consistent 
with the Act because, in the event of a trading halt, terminating the 
exposure period without execution provides certainty to market 
participants with respect to how their interest will be handled.\13\ 
The Commission also notes that the Exchange's proposal to provide 
clarity regarding when the rule change will be implemented for ISE, ISE 
Gemini, and ISE Mercury should help reduce potential confusion 
regarding the operation of the rule.
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    \13\ See Notice, supra note 3, at 96533.
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    For these reasons, the Commission believes that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-ISE-2016-31), be, and hereby 
is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03100 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P