[Federal Register Volume 76, Number 72 (Thursday, April 14, 2011)]
[Notices]
[Pages 21087-21089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8973]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64275; File No. SR-ISE-2011-24]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Enhancements to the Exchange's Electronic Trading 
Platform

April 8, 2011.
    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 April 7, 2011, the International Securities Exchange, LLC (the 
``Exchange'' or the ``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 Exchange has filed the proposal as a ``non-controversial'' proposed 
rule change 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).
    \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 amend certain rules to facilitate 
enhancements to its electronic options trading system being implemented 
as part of the Optimise platform. The text of the proposed rule change 
is available on the Exchange's Web site 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.

[[Page 21088]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange has developed an enhanced technology trading platform 
(the ``Optimise platform''). To assure a smooth transition, the 
Exchange will migrate option classes from its current trading system to 
the Optimise platform over time (the ``Transition Period'').\5\ The 
Optimise platform will offer members the same trading functionality as 
the current trading system with some minor enhancements, several of 
which were previously added to the ISE's rules.\6\ Additionally, the 
Exchange previously adopted rule changes to identify certain 
functionality that it anticipated would be phased-in during the 
Transition Period.\7\ However, since the adoption of these rule 
changes, the initial plan for the launch of the Optimise platform has 
changed, and the Optimise platform will now have most of the current 
functionality available during the Transition Period. The purpose of 
this rule filing is to remove language from the Exchange's rules 
indicating that certain functionality is not available on the Optimise 
platform and to identify additional minor enhancements that will be 
included on the Optimise platform.
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    \5\ Options classes will be transferred from the current trading 
platform to the Optimise trading platform. The same options cannot 
trade on both systems at the same time. The Exchange has been 
working with its members to assure a smooth transition to the 
Optimise trading platform and will continue to do so up to the 
launch of the new technology and during the Transition Period.
    \6\ See Securities Exchange Act Release No. 63117 (October 15, 
2010), 75 FR 65042 (October 21, 2010) (SR-ISE-2010-101).
    \7\ Id.
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    Specifically, the Exchange proposes to delete Supplementary 
Material .10 to Rule 716 (Block Trades), Supplementary Material .03 to 
Rule 722 (Complex Orders), and Supplementary Material .09 to Rule 723 
(Price Improvement Mechanism for Crossing Transactions), which indicate 
that the Block Order Mechanism, Facilitation Mechanism, Solicited Order 
Mechanism, Price Improvement Mechanism and complex order functionality 
will not be available for options traded on the Optimise platform.\8\ 
The Optimise platform will now include all of this functionality during 
the Transition Period.
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    \8\ The only functionality that will be phased-in is related to 
cabinet trades pursuant to ISE Rule 718.
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    With the Optimise platform, the Exchange proposes to add the 
flexibility for the Exchange to determine, on a class basis, whether 
orders on the complex order book at the same price are executed in time 
priority, as they are currently, or among participants pursuant to ISE 
Rule 713(e) and Supplementary Material .01(a) to ISE Rule 713(e).\9\ 
Under ISE Rule 713(e), priority customer orders are given priority over 
Professional Orders and market maker quotes at the same price, which 
will also be the case on the complex order book. However, because there 
is no obligation for primary market makers to enter quotes on the 
complex order book, primary market makers will not receive the enhanced 
participation rights to which they are entitled in the regular 
market.\10\ The Exchange notes that this proposed rule change does not 
affect the provisions of paragraph (b)(2) of Rule 722 which limits the 
execution of complex orders when there are Priority Customer orders on 
the Exchange for the individual series of a complex order.
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    \9\ Exchanges have previously been given the ability to choose 
an allocation methodology on a class or series basis. See, e.g., 
CBOE Rule 6.53C. The Exchange will notify Exchange members regarding 
allocation methodology for executions on the complex order book via 
circular.
    \10\ Supplementary Material to Rule 713, paragraphs .01(b) and 
(c) (enhanced participation rights for Primary Market Makers).
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    For options traded on the Optimise platform, the Exchange also 
proposes to modify the Price Improvement Mechanism so that Counter-Side 
Orders and Improvement Orders only execute against the Agency Order 
that is being exposed. Currently, when members respond to an order 
entered into the Price Improvement Mechanism, they may be executed 
against certain other, unrelated orders.\11\ While the Exchange 
initially implemented this particular feature of the Price Improvement 
Mechanism to differentiate its service from those offered by other 
exchanges and to potentially attract additional unrelated order flow to 
the Exchange, this feature may discourage market participants from 
responding to Agency Orders. Accordingly, the Exchange believes that 
removing this feature could increase competition for orders entered 
into the Price Improvement Mechanism and thereby result in additional 
price improvement for agency orders.\12\
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    \11\ Pursuant to ISE Rule 723(d)(6), when a market order or 
marketable limit order on the same side of the market as the Agency 
Order ends the exposure period, it will execute against any 
unexecuted interest in the Price Improvement Mechanism after the 
Agency Order is executed in full.
    \12\ The Price Improvement Period on the Boston Options Exchange 
(``BOX'') currently contains this feature. See Chapter 5, Sec. 18(i) 
of the BOX Rules.
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    Finally, the Exchange notes that members initially will not be able 
to enter reserve orders, nor complex orders with an all-or-none or 
minimum quantity modifier in options classes that are traded on the 
Optimise platform. The Exchange will make these order types available 
on the Optimise platform as promptly as possible within the first month 
of the Transition Period, and assure that members are informed of the 
status of these order types.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b),\13\ in general, and Section 6(b)(5)\14\ 
in particular, that an exchange have rules that are designed to prevent 
fraudulent and manipulative acts and practices, 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. In 
particular, the Exchange believes the Optimise platform will improve 
the efficiency and quality of options executions on the Exchange. The 
Exchange further believes that liquidity on the complex order book may 
be enhanced by executing all interest at the same price pro-rata based 
on size (with Priority Customer priority) as it does in its regular 
market. Having the ability to determine on a class basis whether orders 
on the complex order book at the same price will be executed in time 
priority or pro-rata based on size (with Priority Customer priority) 
will give the Exchange greater flexibility to respond to market needs 
and enhance its ability to compete more effectively. Finally, the 
Exchange believes that limiting the availability of Counter-Side Orders 
and Improvement Orders to execute only against the agency order being 
exposed in the Price Improvement Mechanism will encourage greater price 
competition with larger size, thereby increasing the opportunity for 
such agency order to receive additional price improvement.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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

[[Page 21089]]

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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) 
thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide 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 of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest.
    The Exchange requests that the Commission waive the 30 day period 
for this filing to become operative so that it may become effective and 
operative upon filing with the Commission pursuant to Section 
19(b)(3)(A) of the Act and rule 19b-4(f)(6) thereunder. The Exchange 
believes that waiver of the operative delay period is consistent with 
the protection of investors and the public interest in that it will 
allow the Exchange to effect an orderly launch of the Optimise platform 
on April 11, 2011. Specifically, the Exchange previously adopted rule 
changes to identify certain existing functionality that it anticipated 
would be phase-in during the Transition Period.\17\ However, virtually 
all of that functionality has been fully tested and is available for 
the launch. The Exchange believes that it will be less disruptive to 
members for this existing functionality to be available on the Optimise 
platform at the launch, as the trading environment will be more similar 
to the Exchange's existing market. In this respect, the Exchange notes 
that it has been conducting extensive testing with members and that it 
will initially trade only ten securities that have very limited trading 
volume on the Optimise platform. The Exchange will gradually transition 
additional securities to the Optimise platform to assure an orderly 
implementation of the new system.
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    \17\ See Securities Exchange Act Release No. 63117 (October 15, 
2010), 75 FR 65042 (October 21, 2010) (SR-ISE-2010-101).
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    The Commission notes that in October of 2010, the Exchange filed a 
proposed rule change relating to the functionalities that are the 
subject of the current proposal.\18\ At that time, the Exchange 
identified certain functionalities, including the functionalities that 
are the subject of the current proposal, which will not be immediately 
available on the Optimise platform but would be phased in during the 
Transition Period. However, the Exchange now represents that the 
functionalities discussed in this filing are fully tested and available 
for launch on April 11. Allowing the functionalities to be available on 
the Optimise platform at the launch rather than after a delay should 
contribute to a more orderly launch and should facilitate 
implementation of Optimise under the Transition Period contemplated by 
the Exchange's rules. Further, as stated above, the Exchange has 
already noted its intent to later adopt these functionalities in a 
previous proposal. Therefore, Commission believes that waiving the 30-
day operative delay is appropriate and consistent with the protection 
of investors and the public interest \19\ and designates the proposed 
rule change as operative upon filing.
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    \18\ See id.
    \19\ 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.

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 e-mail to [email protected]. Please include 
File Number SR-ISE-2011-24 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2011-24. This file 
number should be included on the subject line if e-mail 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange.\20\ 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-2011-24 and should be 
submitted on or before May 5, 2011.
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    \20\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov.
    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8973 Filed 4-13-11; 8:45 am]
BILLING CODE 8011-01-P