[Federal Register Volume 77, Number 156 (Monday, August 13, 2012)]
[Notices]
[Pages 48180-48181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19739]



[[Page 48180]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67606; File No. SR-ISE-2012-69]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Expose Non-Customer Orders Subject to Automatic Rejection to 
Its Members for Potential Execution at the NBBO or Better

August 7, 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 July 30, 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 and II 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 provide an opportunity for Non-Customer 
orders to be exposed for execution on the Exchange before being 
rejected when execution of the order would trade through a better price 
on another exchange or placing the order on the book would lock or 
cross another market. 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 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
    Under the intermarket linkage rules, the ISE cannot execute orders 
at a price that is inferior to the national best bid or offer 
(``NBBO''), nor can the Exchange place an order on its book that would 
cause the ISE best bid or offer to lock or cross another exchange's 
quote.\3\ How the Exchange handles orders in these circumstances 
depends on whether they are Public Customer Orders (i.e., orders for 
the account of a person that is not a broker-dealer) \4\ or Non-
Customer Orders (i.e., orders for the account of a broker-dealer).\5\ 
Non-Customer Orders are rejected automatically upon receipt, whereas 
Public Customer Orders are handled by the Primary Market Maker,\6\ 
which has the responsibility of either executing the Public Customer 
Order at a price that at least matches the NBBO or obtaining better 
prices from the away market(s) by sending one or more intermarket sweep 
orders (``ISOs'') on the Public Customer's behalf.\7\ Before the 
Primary Market Maker sends ISOs to other exchanges in these 
circumstances, Public Customer Orders are exposed to all ISE Members 
for up to one second to give them an opportunity to execute the Public 
Customer Order at the NBBO price or better.\8\
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    \3\ ISE Rule 1901 and 1902.
    \4\ ISE Rule 100(a)(39).
    \5\ ISE Rule 100(a)(28).
    \6\ ISE Rule 714(a).
    \7\ ISE Rule 803(c)(2).
    \8\ Supplementary Material .02 to Rule 803. The exposure period 
for Public Customer Orders currently is 150 milliseconds.
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    Under the proposed rule change, the Exchange seeks to provide Non-
Customer Orders an opportunity to be executed on the ISE before 
automatically rejecting the order, similar to the process used to 
expose Public Customer Orders before ISOs orders are sent to other 
exchanges. Specifically, instead of automatically rejecting a Non-
Customer Order in the circumstances described above, the Exchange 
proposes to expose Non-Customer Orders to all members for up to one 
second. The Exchange will reject any unexecuted balance of the Non-
Customer Order at the end of the exposure period unless it can be 
placed on the ISE book without locking or crossing another exchange's 
quotes.\9\ While the default under the proposal is for Non-Customer 
Orders to be exposed, members may instruct the Exchange not to expose 
Non-Customer Orders.\10\ As a result, this proposed change will have no 
impact on Non-Customers that prefer to have their orders rejected 
immediately upon entry as they are currently.
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    \9\ The Exchange proposes to amend Supplementary Material .02 to 
Rule 803 to provide for the exposure of Non-Customer Orders. The 
proposed changes differentiate the handling of Non-Customer Orders 
from Public Customer Orders, as Primary Market Makers are not 
responsible for providing NBBO price protection to Non-Customer 
Orders. Primary Market Makers will not handle Non-Customer Orders 
under the proposed exposure process for Non-Customer Orders.
    \10\ The Commission has previously approved the exposure of Non-
Customer Orders when an exchange is not at the NBBO. CBOE Rule 
6.14A(a) (providing that the CBOE may designate eligible order 
origin code, including non-market maker broker-dealer, and class in 
which HAL2 is activated).
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    The Exchange anticipates implementing the new system functionality 
for the proposed rule change in August 2012. Prior to implementation, 
the Exchange will issue a circular to all members informing them of the 
date on which the new functionality will become available.
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 for a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The proposed rule change will provide Non-Customer Orders a 
greater opportunity to receive an execution on the ISE at the NBBO or 
better. Due to differences in execution fees among the options 
exchanges, the Exchange believes that some Non-Customers would prefer 
to have their orders executed on the ISE if possible. However, the 
Exchange also believes that some Non-Customers prefer not to have their 
orders delayed in any manner. Accordingly, the proposed rule change 
allows members to choose whether Non-Customers Orders should be 
rejected upon entry as they are currently, or whether they should be 
exposed on the Exchange before being rejected. Thus, the Exchange 
believes the proposed rule change will benefit Non-Customers by giving 
them greater control over the processing of their orders.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).

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[[Page 48181]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition.

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 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 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 \13\ and Rule 19b-4(f)(6) 
thereunder.\14\ At any time within 60 days of the filing of such 
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.
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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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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 Number SR-ISE-2012-69 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-2012-69. 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 Exchange. 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-2012-69 and should be 
submitted on or before September 4, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19739 Filed 8-10-12; 8:45 am]
BILLING CODE 8011-01-P