[Federal Register Volume 79, Number 65 (Friday, April 4, 2014)]
[Notices]
[Pages 18944-18947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07511]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71832; File No. SR-ISE-2014-18]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend ISE Rule 623 (``Options Communications'') To Conform 
With the Rules of the Financial Industry Regulatory Authority Inc.

March 31, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 20, 2014, the International Securities Exchange, LLC 
(``Exchange'' or ``ISE'')

[[Page 18945]]

filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which items 
have been substantially prepared by the Exchange. ISE has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
\4\ thereunder, which renders the proposal effective upon receipt of 
this filing by the Commission. 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 is proposing to update ISE Rule 623 (Options 
Communications) to conform with the rules of the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') for purposes of an agreement 
between the Exchange and FINRA pursuant to Exchange Act Rule 17d-2.\5\ 
The text of the proposed rule change is available on the Exchange's Web 
site at http://www.ise.com, at the Exchange's principal office, and at 
the Commission's Public Reference Room.
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    \5\ 17 CFR 240.17d-2.
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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 Exchange 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
    Pursuant to Exchange Act Rule 17d-2,\6\ the Exchange and FINRA 
entered into an agreement to allocate regulatory responsibility for 
common rules (``17d-2 Agreement''). The 17d-2 Agreement covers common 
members of the Exchange and FINRA (``Common Members'') and allocates to 
FINRA regulatory responsibility, with respect to Common Members, for 
the following: (i) Examination of Common Members for compliance with 
federal securities laws, rules and regulations and rules of the 
Exchange that the Exchange has certified as identical or substantially 
similar to FINRA rules; (ii) investigation of Common Members for 
violations of federal securities laws, rules and regulations, and the 
rules of the Exchange that the Exchange has certified as identical or 
substantially identical to FINRA rules; and (iii) enforcement of 
compliance by Common Members with the federal securities laws, rules 
and regulations, and the rules of the Exchange that the Exchange has 
certified as identical or substantially similar to FINRA rules.
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    \6\ Id.
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    The 17d-2 Agreement included a certification by the Exchange that 
states that the requirements contained in certain Exchange rules are 
identical to, or substantially similar to, certain FINRA rules that 
have been identified as comparable. To conform with comparable FINRA 
rules for purposes of the 17d-2 Agreement, the Exchange is proposing to 
amend ISE Rule 623 to conform with changes made by FINRA to its 
corresponding rule, Rule 2220.\7\
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    \7\ See Exchange Act Release No. 68650 (Jan. 14, 2013), 78 FR 
4182 (Jan. 18, 2013) (Approving, among other things, amendments to 
FINRA Rule 2220 (Options Communications) to update cross-references 
to FINRA Rule 2210 (Communications with the Public)); see also 
Exchange Act Release No. 66681 (Mar. 29, 2012), 77 FR 20452 (Apr. 4, 
2012) (Approving, among other things, amendments to FINRA Rule 
2210).
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    First, the Exchange proposes to amend Rule 623(a) to reduce the 
number of defined categories of communication from six (in the current 
rule) to three: ``Retail communications,'' ``correspondence,'' and 
``institutional communications.'' Current definitions of ``sales 
literature,'' ``advertisement,'' and ``independently prepared reprint'' 
would be combined into a single category of ``retail communications.'' 
Specifically, the proposal would define ``retail communication'' to 
mean ``any written (including electronic) communication that is 
distributed or made available to more than 25 retail investors within 
any 30 calendar-day period.'' The Exchange would also update the 
current definition of ``correspondence'' to mean ``any written 
(including electronic) communication distributed or made to 25 or fewer 
retail customers within any 30 calendar-day period.'' Finally, the 
Exchange would define ``institutional communication'' to include 
written (including electronic) communications that are distributed or 
made available only to institutional investors. The Exchange believes 
the proposed changes to the definitions in Rule 623(a) would create a 
more concise and descriptive rule, and clarify the terms for ISE 
members.
    Second, the Exchange is proposing to amend Rule 623(b), ``Approval 
by Registered Options Principal.'' More specifically, the Exchange is 
proposing to replace the phrase ``advertisements, sales literature . . 
. and independently prepared reprints'' in Rule 623(b)(1) with the new 
term, ``retail communications.'' The Exchange believes that this change 
would make the rule more coherent with the other proposed changes.
    In addition, the proposal would amend Rule 623(b)(2) to delete the 
requirement for prior approval by a Registered Options Principal of 
correspondence (as currently defined) that is distributed to 25 or more 
existing retail customers within a 30 calendar-day period that makes 
any financial or investment recommendation or otherwise promotes the 
product or service of a member. Under the proposal, such communications 
would be considered retail communications and therefore subject to the 
principal approval requirement of amended Rule 623(b)(1). Under the 
proposal, correspondence (as amended) would continue to be excluded 
from the requirement to be approved by a Registered Options Principal 
prior to use but would still be subject to the supervision and review 
requirements of Rule 609. As such, ISE believes that the proposed 
change would not substantively change the scope of options 
communications that would require principal approval.
    Next, the Exchange is proposing to amend Rule 623(b)(3) to modify 
the required approvals of Institutional communications. Specifically, 
the Exchange is proposing to add that its members shall ``establish 
written procedures that are appropriate to its business, size, 
structure, and customers for review by a Registered Options Principal 
of institutional communications used by the member.'' The Exchange 
believes this would better align ISE Rule 623 with FINRA Rule 2220.
    Third, the Exchange is proposing to amend Rule 623(c) to replace 
the phrase ``advertisements, sales literature, and independently 
prepared reprints'' with the new proposed term, ``retail 
communications.'' The Exchange is also proposing to exempt options 
disclosure documents and prospectuses from Exchange review and approval 
as these documents have other further requirements under the Securities 
Act of 1933 (``Securities Act''). The Exchange

[[Page 18946]]

believes these changes would better align Exchange Rule 623 with FINRA 
Rule 2220.
    Fourth, the Exchange is proposing to amend Rule 623(d) to specify 
that its members may not use any options communications that would 
constitute a prospectus (as defined in the Securities Act) unless it 
would meet the requirements of Securities Act Section 10.\8\ The 
Exchange believes this change would put its members on notice that all 
documents that may constitute a prospectus would be required to comply 
with the Securities Act.
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    \8\ 15 U.S.C. 78j.
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    In addition, the Exchange is proposing to modify Rule 623(d) to 
provide that any statement made referring to potential opportunities or 
advantages presented by options must be accompanied by a statement 
identifying the potential risks posed as well. The Exchange believes 
that moving this language to the end of paragraph (d) would help alert 
the public of potential risks associated with options, as well as the 
advantages, which would create more awareness of the potential harms 
that may arise in the participation of such securities. The Exchange 
believes that this would help ensure that investors are protected from 
potentially false or misleading communications distributed by its 
members. The Exchange also believes this would better align ISE Rule 
623 with FINRA Rule 2220 and provide greater clarity to its members and 
the public regarding the Exchange's rules.
    In sum, the Exchange believes the proposed changes would alert its 
members to their requirements with respect to Options Communications 
while further regulating all communications for compliance with 
Exchange rules, and the Act and rules promulgated thereunder. In 
addition, the Exchange believes that the proposed rule change would 
help ensure that investors are protected from potentially false or 
misleading communications with the public distributed by its members.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\9\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) 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 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.\10\ Additionally, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) requirement that the 
rules of an exchange are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    In particular, the Exchange believes the proposed rule changes 
would provide greater clarity to its members and the public regarding 
the Exchange's rules and provide greater harmonization between the 
Exchange and FINRA rules of similar purpose, resulting in greater 
uniformity and less burdensome and more efficient regulatory 
compliance. In addition, the Exchange believes that the proposed rule 
change would help ensure that investors are protected from potentially 
false or misleading communications with the public distributed by its 
members.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange 
believes that the proposed rule change will merely bring clarity and 
consistency to Exchange rules. The Exchange does not believe the 
proposed rule change will impose any burden on any intramarket 
competition as it applies to its members. In addition, the Exchange 
does not believe the proposed rule filing will bring any unnecessary 
burden on intermarket competition as it is consistent with FINRA Rule 
2220 (Options Communications).

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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, it has become effective pursuant to Section 
19(b)(3)(A) of the Act\12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) also requires the 
Exchange to give the Commission 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 satisfied 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. Pursuant to 
Rule 19b-4(f)(6)(iii), however, the Commission may designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest.\14\ The Exchange has asked the Commission to waive 
the 30-day operative delay so that the proposal may become operative 
immediately upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the Exchange to immediately conform its rules to 
corresponding FINRA rules. This will help ensure that such ISE rules 
will continue to be covered by the existing 17d-2 Agreement between the 
Exchange and FINRA and reduce duplicative regulation of Common 
Members.\15\
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    \15\ For purposes of waiving the 30-day operative delay, the 
Commission has 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 sixty (60) days of the filing 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:

[[Page 18947]]

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-2014-18 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2014-18. 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 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 such filing also will be available for inspection 
and copying at the principal office of 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-2014-18 and should be submitted on 
or before April 25, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07511 Filed 4-3-14; 8:45 am]
BILLING CODE 8011-01-P