[Federal Register Volume 78, Number 243 (Wednesday, December 18, 2013)]
[Notices]
[Pages 76667-76669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30049]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71066; File No. SR-ISE-2013-66]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Change Procedure for Processing Fingerprints Under Existing 
Rule 1408

December 12, 2013.
    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 December 4, 2013, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to change its procedure for processing 
fingerprints under its existing Rule 1408. 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 Exchange proposes to change the procedure under its existing 
Rule 1408

[[Page 76668]]

(Fingerprint-Based Background Checks of Exchange Employees and 
Independent Contractors and Other Service Providers) regarding its 
current practice of conducting fingerprint-based criminal records 
checks of (i) directors, officers and employees of the Exchange and 
(ii) temporary personnel, independent contractors, consultants, vendors 
and service providers (collectively, ``Contractors'') who have or are 
anticipated to have access to facilities and records. A number of 
securities markets have filed rules and procedures with the Securities 
and Exchange Commission (``Commission'' or ``SEC'') to obtain 
fingerprints from certain enumerate parties.\3\ ISE's proposal to 
change its procedure under its Rule 1408 is consistent with these 
rules. Specifically, the Exchange is proposing to: (1) Discontinue the 
current method of manual fingerprinting via fingerprint cards and (2) 
utilize a Live-Scan \4\ electronic system for the taking of 
fingerprints. All of the proposed changes are consistent with the 
requirements of other options exchanges.\5\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 69496 (May 2, 2013), 
78 FR 26671 (May 7, 2013), (Notice of filing and immediate 
effectiveness of a proposed Chicago Board Options Exchange 
(``CBOE'') rule change relating to fingerprint-based background 
checks (SR-CBOE-2013-044)); Rule 28 of the New York Stock Exchange 
(``NYSE''); Rule 0140 of the Nasdaq Stock Market, Inc. (``Nasdaq''); 
and Securities Exchange Act Release No. 50157 (August 5, 2004), 69 
FR 49924 (August 12, 2004) (policy adopted by the Financial Industry 
Regulatory Authority (``FINRA''), formerly known as National 
Association of Securities Dealers, Inc. (``NASD''), to conduct 
fingerprint-based background checks of NASD employees and 
independent contractors).
    \4\ Live-Scan refers to the process of capturing fingerprints 
directly into a digitized format as opposed to traditional ink and 
paper methods. Using Live-Scan technology, images are captured and 
transmitted to a central location and/or interface for 
identification processing. Certified Live-Scan systems produce 
consistent high quality fingerprint images, thereby reducing 
rejection rates and lowering turnaround times. Live-Scan systems are 
used by law enforcement agencies for processing criminal fingerprint 
records and in government and commercial markets for applicant 
employment background checks.
    \5\ See Supra note 1.
---------------------------------------------------------------------------

    Access to the Federal Bureau of Investigation's (``FBI'') (the 
fingerprint processing arm of the Office of the Attorney General of the 
United States) database of fingerprint-based records is permitted only 
when authorized by law. Section 17(f)(2) of the Act explicitly directs 
the Attorney General of the United States (i.e., the FBI) to provide 
SROs designated by the Commission with access to criminal history 
record information. The Exchange has conducted its fingerprint-based 
record checks of (i) directors, officers and employees of the Exchange 
and (ii) Contractors since Rule 1408 was adopted on December 18, 
2003.\6\ Under the current fingerprinting procedure, the Exchange staff 
manually rolls the fingerprints and submits the fingerprint cards to 
the FBI.\7\ The Exchange was recently notified that the FBI would no 
longer accept card stocks of fingerprints due to the high costs 
associated with processing these submissions, thereby requiring that 
all fingerprints be submitted in an electronic format for 
processing.\8\ The FBI requires a minimum of 3,000 submissions per year 
in order to maintain a direct FBI connection for electronic fingerprint 
processing. However, the Exchange's annual volume of fingerprint 
submissions is approximately 200 per year. Because this is a mere 
fraction of the minimum requirement set forth by the FBI, it is 
necessary that the ISE engage an FBI-authorized Channel Partner for 
these services in order to comply with applicable state and federal 
law.\9\ Accordingly, the Exchange is now proposing to utilize a Live-
Scan electronic fingerprinting system, as mentioned above. Any Live-
Scan system utilized by the Exchange will have been certified by the 
FBI for compliance with the FBI's Integrated Automated Fingerprint 
Identification System (``IAFIS'') \10\ image quality specifications. 
The Live-Scan system will electronically capture and transmit 
fingerprints to the FBI for processing and transmit fingerprint reports 
back to the ISE.\11\ The Live-Scan system will be maintained by an FBI-
approved Channel Partner \12\ and operated by a qualified Channel 
Partner representative. The Exchange notes that at least one other 
exchange employs the same method for processing fingerprints 
electronically.\13\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 48840 (November 25, 
2003), 68 FR 67711 (December 3, 2003) (SR-ISE-2003-29).
    \7\ The Exchange notes that two to three weeks generally elapses 
between the time when the ISE submits fingerprint cards and when ISE 
received [sic] fingerprint reports.
    \8\ The Exchange was grandfathered into this process during the 
FBI's transition to utilizing an electronic system to obtain 
fingerprints, but now must transition into utilizing an electronic 
fingerprinting system as required by the FBI.
    \9\ N.Y. Gen. Bus. Law Sec.  359-e (McKinney); 15 U.S.C. 
78q(f)(2); 17 CFR 240.17f-2(c), respectively.
    \10\ The IAFIS, which was launched in July 1999, was developed 
to offer rapid suspect identification to law enforcement agencies 
and organizations where criminal background histories are a critical 
factor in consideration for employment. Because fingerprint cards 
must be physically transported and processes, substantial delays can 
be experienced in the identification cycle. To improve the speed and 
accuracy of the fingerprint identification process and eliminate the 
need for contributing agencies to create and mail paper fingerprint 
cards to the FBI for processing, the FBI Criminal Justice 
Information Services Division developed the IAFIS to support the 
paperless submission of fingerprint records. IAFIS provides Federal, 
state and local criminal justice agencies the ability to 
electronically transmit fingerprint information, vastly improving 
response time.
    \11\ The Exchange estimates that under this proposed change 
approximately two days will elapse between when ISE submits 
electronic fingerprints and when the FBI returns fingerprint reports 
to the ISE.
    \12\ FBI-approved Channel Partners receive the fingerprint 
submission and relevant data, collect the associated fee(s), 
electronically forward the fingerprint submission with the necessary 
information to the FBI Criminal Justice Information Services 
Division (``CJIS'') for a national Criminal History Summary check, 
and receive the electronic summary check result for dissemination to 
the individual. An FBI-approved Channel Partner simply helps 
expedite the delivery of Criminal History Summary information on 
behalf of the FBI. The process for making a request through an FBI-
approved Channel Partner is consistent with FBI submission 
procedures.
    \13\ See Securities Exchange Act Release Nos. 46467 (September 
6, 2002), 67 FR 58088 (September 13, 2002), (Approval of CBOE using 
electronic system for submitting fingerprints under its 
fingerprinting plan), as corrected by 46467A (December 19, 2002), 67 
FR 79195 (December 27, 2002).
---------------------------------------------------------------------------

    The procedural change that ISE is proposing under its existing rule 
is concerned with the constitution of a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of ISE and ISE believes that it is 
therefore eligible to be filed pursuant to section 19(b)(3)(A)(i) of 
the Act \14\ and Rule 19b-4(f)(1) \15\ thereunder. The Exchange 
believes that this proposed procedural change under the existing rule 
is necessary in order to ensure the Exchange's continued compliance 
with its Rules and applicable state and federal law.\16\

---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(i).
    \15\ 17 CFR 240.19b-4(f)(1).
    \16\ See Supra note 9.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with the Act 
\17\ and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act. Specifically, the Exchange believes the proposed procedural change 
under Rule 1408 is consistent with the Section 6(b)(5) \18\ 
requirements that the rules of an exchange be 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 of a free and open market and a national market system, and, 
in

[[Page 76669]]

general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that fingerprint-based 
background checks via a Live-Scan system of directors, officers, 
employees and contractors is consistent with the foregoing requirements 
of Section 6(b)(5) in that it will allow ISE to remain compliant with 
the requirements of its Rule 1408 and applicable state and federal 
laws.\19\ Continuing to run fingerprint-based background checks is 
imperative for the Exchange as they help ISE identify and exclude 
persons with felony or misdemeanor conviction records that may pose a 
threat to the safety of Exchange personnel or the security of 
facilities and records, thereby enhancing business continuity, 
workplace safety and the security of the Exchange's operations and 
helping to protect investors and the public interest. Additionally, the 
proposed procedural change will allow ISE to employ the same 
fingerprinting method currently employed by at least one other SRO.\20\
---------------------------------------------------------------------------

    \19\ See Supra note 9.
    \20\ See Supra note 13.
---------------------------------------------------------------------------

    For the foregoing reasons, the Exchange believes that the proposed 
procedural change under the existing rule is appropriate in order to 
ensure continued compliance with applicable state and federal laws.\21\
---------------------------------------------------------------------------

    \21\ See Supra note 9.
---------------------------------------------------------------------------

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

    ISE does not believe that the proposed procedural change under the 
rule will impose any burden on competition that is not necessary or 
appropriate in the furtherance of the purposes of the Act. The proposed 
procedural change under the rule would enhance the security of the 
Exchange's facilities and records without adding any burden on market 
participants and allow the Exchange continued compliance with its 
fingerprinting rules and with Section 17(f)(2) of the Act as amended by 
the Dodd-Frank Act.\22\
---------------------------------------------------------------------------

    \22\ See Section 929S of the Dodd-Frank 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

    The foregoing proposed rule change will take effect upon filing 
with the Commission pursuant to Section 19(b)(3)(A)(i) of the Act \23\ 
and Rule 19b-4(f)(1) thereunder,\24\ because it constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(i).
    \24\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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-2013-66 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-2013-66. 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 on official business days 
between 10 a.m. and 3 p.m. 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-2013-66 and should be 
submitted by January 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30049 Filed 12-17-13; 8:45 am]
BILLING CODE 8011-01-P