[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Notices]
[Pages 66063-66065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27352]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76232; File No. SR-ISE-2015-34]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Extend the Limit Up-Limit Down Obvious Error Pilot

October 22, 2015.
    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 October 20, 2015, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange 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 the 
Substance of the Proposed Rule Change

    The ISE proposes to extend a pilot program under .01 of 
Supplementary Material to Rule 720 regarding obvious errors during 
Limit and Straddle States in securities that underlie options traded on 
the Exchange and proposes to further harmonize a related provision in 
its rulebook. 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
    On April 5, 2013,\3\ the Commission approved a proposed rule change 
designed to address certain issues related to the Plan to Address 
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS 
under the Act (the ``Limit Up-Limit Down Plan'' or the ``Plan'').\4\ 
The rules adopted in that filing established a one year pilot program 
to exclude transactions executed during a Limit State \5\ or Straddle 
State \6\ from the obvious error provisions of Rule 720. On February 
19, 2015, the Exchange filed to extend this pilot program to its 
current end date of October 23, 2015.\7\ The purpose of this filing is 
to extend the effectiveness of the pilot program to coincide with the 
proposed extension of the Limit Up-Limit Down Plan, including any 
extensions to the pilot period for the Plan.\8\ The Exchange notes that 
nothing in .01 of Supplementary Material to Rule 720 prevents such 
execution from being reviewed on an Official's \9\ own motion pursuant 
to sub-paragraph (c)(3) of this Rule, or a bust or adjust pursuant to 
paragraphs (e) through (j) of this Rule.
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    \3\ See Securities Exchange Act Release No. 69329 (April 5, 
2013), 78 FR 21657 (April 11, 2014) (SR-ISE-2013-22) (Approval 
Order); 69110 (March 11, 2013) 78 FR 16726 (March 18, 2013) (SR-ISE-
2013-22) (Notice of Filing).
    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
    \5\ The term ``Limit State'' means the condition when the 
national best bid or national best offer for an underlying security 
equals an applicable price band, as determined by the primary 
listing exchange for the underlying security. See Rule 703A.
    \6\ The term ``Straddle State'' means the condition when the 
national best bid or national best offer for an underlying security 
is non-executable, as determined by the primary listing exchange for 
the underlying security, but the security is not in a Limit State. 
See Rule 703A.
    \7\ Securities Exchange Act Release No. 74335 (February 20, 
2015), 80 FR 10549 (February 26, 2015) (SR-ISE-2015-07).
    \8\ Currently, the pilot period for the Plan is proposed to be 
extended to April 22, 2016. See Exchange Act Release No. 75917 
(September 14, 2015), 80 FR 56515 (September 18, 2015) (Ninth 
Amendment to the Limit-Up Limit-Down Plan).
    \9\ For purposes of Rule 720, an Official is an Officer of the 
Exchange or such other employee designee of the Exchange that is 
trained in the application of this Rule.
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    The Exchange believes the benefits to market participants from this 
provision should continue on a pilot basis. The Exchange continues to 
believe that adding certainty to the execution of orders in Limit or 
Straddle States will encourage market participants to continue to 
provide liquidity to the Exchange, and, thus, promote a fair and 
orderly market during these periods. Barring this provision, the 
obvious error provisions of Rule 720 would likely apply in many 
instances during Limit and Straddle States. The Exchange believes that 
continuing the pilot will protect against any unanticipated 
consequences in the options markets during a Limit or Straddle State. 
Thus, the Exchange believes that the protections of current rule should 
continue while the industry gains further experience operating the 
Plan.
    In connection with this proposed extension, each month the Exchange 
shall provide to the Commission, and the public, a dataset containing 
the data for each Straddle and Limit State in optionable stocks that 
had at least one trade on the Exchange. For each trade

[[Page 66064]]

on the Exchange, the Exchange will provide (a) the stock symbol, option 
symbol, time at the start of the Straddle or Limit State, an indicator 
for whether it is a Straddle or Limit State, and (b) for the trades on 
the Exchange, the executed volume, time-weighted quoted bid-ask spread, 
time-weighted average quoted depth at the bid, time-weighted average 
quoted depth at the offer, high execution price, low execution price, 
number of trades for which a request for review for error was received 
during Straddle and Limit States, an indicator variable for whether 
those options outlined above have a price change exceeding 30% during 
the underlying stock's Limit or Straddle State compared to the last 
available option price as reported by OPRA before the start of the 
Limit or Straddle State (1 if observe 30% and 0 otherwise), and another 
indicator variable for whether the option price within five minutes of 
the underlying stock leaving the Limit or Straddle State (or halt if 
applicable) is 30% away from the price before the start of the Limit or 
Straddle State.
    In addition, the Exchange will provide to the Commission, and the 
public, no later than five months prior to the pilot expiration, 
including any extension, assessments relating to the impact of the 
operation of the obvious error rules during Limit and Straddle States 
including: (1) An evaluation of the statistical and economic impact of 
Limit and Straddle States on liquidity and market quality in the 
options markets, and (2) an assessment of whether the lack of obvious 
error rules in effect during the Straddle and Limit States are 
problematic. This means that, if the Plan extension is approved, the 
next data assessment will be due no later than December 18, 2015.
    Finally, the Exchange proposes to delete section (d) of Rule 703A 
to harmonize its rulebook. Earlier this year, the options exchanges 
harmonized their rules relating to the adjustment and nullification of 
erroneous options transactions as well as a specific provision related 
to coordination in connection with large-scale events involving 
erroneous options transactions.\10\ The Exchange inadvertently did not 
remove section (d) to Rule 703A from its rulebook in this filing. This 
section (d) duplicates .01 of Supplementary Material to Rule 720, and 
as such, the Exchange proposes to delete it.

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    \10\ Securities Exchange Act Release No. 74896 (May 7, 2015), 80 
FR 27373 (May 13, 2015) (SR-ISE-2015-18).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\11\ In particular, 
the proposal is consistent with Section 6(b)(5) of the Act,\12\ because 
it is designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. Additionally, the Exchange believes 
the proposed rule change is consistent with the Section 6(b)(5) \13\ 
requirement that the rules of an exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
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    In particular, the Exchange further believes that it is necessary 
and appropriate in the interest of promoting fair and orderly markets 
to exclude transactions executed during a Limit or Straddle State from 
certain aspects of Rule 720. The Exchange believes the application of 
the current rule will be impracticable given the lack of a reliable 
national best bid or offer in the options market during Limit and 
Straddle States, and that the resulting actions (i.e., nullified trades 
or adjusted prices) may not be appropriate given market conditions. 
Extending this pilot to coincide with the Limit Up-Limit Down Plan 
would ensure that limit orders that are filled during a Limit or 
Straddle State would have certainty of execution in a manner that 
promotes just and equitable principles of trade, removes impediments 
to, and perfects the mechanism of a free and open market and a national 
market system. Thus, the Exchange believes that the protections of the 
pilot should continue while the industry gains further experience 
operating the Plan. Finally, the Exchange proposes to delete section 
(d) of Rule 703A to harmonize its rulebook to prevent investor 
confusion.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
believes that, by extending the expiration of the pilot, the proposed 
rule change will allow for further analysis of the pilot and a 
determination of how the pilot shall be structured in the future. In 
doing so, the proposed rule change will also serve to promote 
regulatory clarity and consistency, thereby reducing burdens on the 
marketplace and facilitating investor protection.

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 \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6)(iii). 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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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
as it will allow the obvious error pilot program to continue 
uninterrupted while the industry gains further experience operating 
under the Plan, and avoid any investor confusion that could result from 
a temporary interruption in the pilot program. For this reason, the 
Commission designates the proposed rule change to be operative upon 
filing.\16\
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    \16\ 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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[[Page 66065]]

    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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-2015-34 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-2015-34. 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 such 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-2015-34, and should be 
submitted on or before November 18, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-27352 Filed 10-27-15; 8:45 am]
BILLING CODE 8011-01-P