[Federal Register Volume 77, Number 133 (Wednesday, July 11, 2012)]
[Notices]
[Pages 40935-40936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-16877]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67353; File No. SR-ISE-2012-61]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by International Securities 
Exchange To Amend ISE Rule 715 To Reflect a Modification in the 
Functionality of the Add Liquidity Order

 July 5, 2012.
    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 June 27, 2012, 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, 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

    The Exchange proposes to amend Rule 715 (Types of Orders) to 
reflect a modification in the functionality of the Add Liquidity Order 
and to rename the order type.
    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 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 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 [sic] amend ISE Rule 
715(n), Add Liquidity Order (``ALO''), to add a sentence describing a 
change to the functionality.\3\
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    \3\ ALOs have not yet been implemented on the Exchange. While 
the rule change adopting the ALO became operative on April 6, 2012, 
the implementation date for the order type was delayed until such 
time as the technology incorporating this functionality was 
released. See Securities Exchange Act Release No. 66617 (March 19, 
2012), 77 FR 17102 (March 23, 2012) (Notice of Filing and Immediate 
Effectiveness of SR-ISE-2012-20).
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    The ALO was adopted to accommodate investors and market 
participants who wish only to provide liquidity in certain 
circumstances, such as to receive a maker fee (rebate) upon execution 
of an order. ALOs are limit orders that will only be executed as a 
``maker'' on the ISE. Members can choose whether an ALO that is 
executable on the ISE upon entry (or that locks or crosses an away 
market upon entry) will be cancelled or re-priced to one minimum price 
variation above the national best bid or below the national best offer. 
For an ALO to be accepted by the system the Member must designate 
whether the order shall be re-priced or cancelled; there is no default 
option. An Add Liquidity Order will only be re-priced once and will be 
executed at the re-priced price.
    The Exchange is now proposing additional functionality, such that, 
if at the time of entry, an ALO would lock or cross one or more non-
displayed orders on the Exchange, the ALO will be cancelled or re-
priced to the minimum price variation above the best non-displayed bid 
price (for sell orders) or below the best non-displayed offer price 
(for buy orders).\4\ Currently, the only type of non-displayed order 
available on the Exchange is the all-or-none order (``AON''). AONs are 
contingency orders that have no priority on the book,\5\ are not 
included in the ISE best bid or offer and, as such, are not included in 
the national best bid or offer (``NBBO''). AONs are considered to be 
``non-displayed'' because they are not disseminated to OPRA to be 
included in the NBBO. However, they are not truly a ``non-displayed'' 
order as AONs are disseminated via the ISE Order Feed which Members can 
subscribe to for a fee.\6\ Accordingly, Members entering AONs do not 
have an expectation that their order is ``non-displayed'' and would not 
have concerns that the ALO could disclose the existence of the AON by 
re-pricing to one minimum price variation above the AON bid price or 
below the AON offer price as Members have access to the existence of 
AONs via the ISE Order Feed.
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    \4\ For example, if the NBBO is 2.00 x 2.06 and there is a non-
displayed all-or-none (``AON'') order (due to the size contingency, 
AON orders are not displayed) on the book to sell 10 contracts at 
2.05, an incoming ALO to buy 10 contracts at 2.06 will be re-priced 
to 2.04.
    \5\ See Supplemental Material .02 to ISE Rule 713.
    \6\ See ISE Schedule of Fees.
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    The Exchange believes that adding this functionality is imperative 
to ensure that ALOs are only executed when providing liquidity. Without 
the ability to re-price an ALO that locks or crosses a non-displayed 
order, under certain circumstances, an incoming ALO could execute 
against a non-displayed order resting on the ISE limit order book, 
which would be in direct contravention with the purpose of an ALO--to 
provide liquidity, not take liquidity.
    Additionally, for branding and marketing purposes, the Exchange 
proposes to rename the ``Add Liquidity Order'' to the ``Add Liquidity 
Only'' order.
    As the implementation date for this order is not certain, the 
Exchange will announce the specific operative date via an Information 
Circular.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\7\ in general, and with 
Section 6(b)(5) of the Act,\8\ in particular, in that the proposal is 
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 regulating, clearing, settling 
processing information with respect to, and 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. Specifically, the ALO order 
is designed to provide market participants with the ability to provide 
liquidity and have more control over their execution costs. When an ALO 
would lock or cross a non-displayed order on the ISE limit

[[Page 40936]]

order book or be executed upon entry, it will either be cancelled or 
re-priced as designated. The only non-displayed order type that the 
Exchange offers is the all-or-none order, which is non-displayed in the 
sense that it is not included in the ISE best bid and offer, and 
therefore, is not included in the NBBO. However, AONs are disseminated 
via the ISE Order Feed, allowing market participants to know of the 
existence of the AONs and thereby removing any expectation that AONs 
are truly non-displayed. Accordingly, Members entering AONs do not have 
an expectation that their AON is non-displayed and would not have 
concerns that this modification of the ALO's functionality could 
provide market participants with the ability to ferret out AONs on the 
ISE limit order book which would otherwise be hidden.
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    \7\ 15 U.S.C. 78f.
    \8\ 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 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 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) \9\ of the Act and Rule 19b-
4(f)(6) \10\ thereunder. 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission 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 Email to [email protected]. Please include 
File No. SR-ISE-2012-61 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-2012-61. 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, 100 F Street NE., Washington, 
DC 20549. 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-2012-61 and should be submitted by 
August 1, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-16877 Filed 7-10-12; 8:45 am]
BILLING CODE 8011-01-P