[Federal Register Volume 81, Number 42 (Thursday, March 3, 2016)]
[Notices]
[Pages 11309-11311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04638]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77247; File No. SR-ISE Gemini-2015-17]


Self-Regulatory Organizations; ISE Gemini, LLC; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Amend Rule 804(g)

February 26, 2016.

I. Introduction

    On November 12, 2015, the ISE Gemini, LLC (``ISE Gemini'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4

[[Page 11310]]

thereunder,\2\ a proposed rule change to require Clearing Member \3\ 
approval for a market maker to resume trading after the activation of a 
market-wide speed bump under ISE Gemini Rule 804(g). The proposed rule 
change was published for comment in the Federal Register on November 
30, 2015.\4\ On January 13, 2016, the Commission extended the time 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change to February 28, 2016.\5\ The 
Commission did not receive any comments on the proposed rule change. 
This order institutes proceedings under Section 19(b)(2)(B) of the Act 
\6\ to determine whether to approve or disapprove the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A ``Clearing Member'' is a Member that is self-clearing or 
an Electronic Access Member that clears transactions for other 
members of the Exchange. See ISE Gemini Rule 100(a)(9). An 
``Electronic Access Member'' is an Exchange Member that is approved 
to exercise trading privileges associated with EAM Rights. See 
Article XIII, Section 13.1(j) of the Constitution of ISE Gemini.
    \4\ See Securities Exchange Act Release No. 76505 (November 23, 
2015), 80 FR 74824 (November 30, 2015) (``Notice'').
    \5\ See Securities Exchange Act Release No. 76894 (January 13, 
2016), 81 FR 3218 (January 20, 2016).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    Pursuant to ISE Gemini Rule 804(g)(1), the Exchange requires market 
makers \7\ to provide parameters according to which the Exchange will 
automatically remove a market maker's quotations in all series of an 
options class. Additionally, the Exchange requires market makers to 
provide a market-wide parameter according to which the Exchange will 
automatically remove a market maker's quotes in all classes when, 
during a time period established by the market maker, the total number 
of quote removal events (or ``curtailment events'') specified in Rule 
804(g)(1) exceed such specified market-wide parameter.\8\ The latter 
market-wide risk management functionality is known as a ``market-wide 
speed bump'' and is available for quotes only on ISE Gemini or across 
both ISE Gemini and ISE Gemini's affiliated exchange, International 
Securities Exchange, LLC.\9\
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    \7\ ISE Gemini has two categories of market makers: Primary 
Market Makers (``PMMs'') and Competitive Market Makers (``CMMs''). A 
PMM is appointed to each options class traded on the Exchange but a 
CMM may or may not be appointed to each such options class. See ISE 
Gemini Rule 802.
    \8\ See ISE Gemini Rule 804(g)(2).
    \9\ Id.
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    Currently, if ISE Gemini's trading system removes all of a market 
maker's quotes because a market-wide speed bump is triggered, the 
market maker may re-enter the market and resume trading upon 
notification to the Exchange's Market Operations.\10\ The Exchange now 
proposes to amend ISE Gemini Rule 804(g)(2) to require Clearing Member 
approval before a market maker can resume trading.\11\ Specifically, 
following a market-wide speed bump, the proposed rule requires a market 
maker to notify its Clearing Member(s) when it is ready to resume 
trading and requires each applicable Clearing Member to inform the 
Exchange directly when its authorization has been given for the market 
maker to resume trading.\12\ In order to ``facilitate a better response 
time'' from Clearing Members, so that a market maker can re-enter the 
market, the proposal also allows Exchange staff to notify Clearing 
Member(s) when a market maker's quotes have been removed pursuant to 
the market-wide speed bump.\13\
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    \10\ See Notice, supra note 4, at 74824.
    \11\ See proposed Rule 804(g)(2).
    \12\ See id.
    \13\ See id.
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    The Exchange believes that it is appropriate to require Clearing 
Member approval before a market maker can re-enter the market after a 
market-wide speed bump because the Clearing Member guarantees the 
market maker's trades and bears the ultimate financial risk associated 
with those transactions. The Exchange notes that, while not all market 
makers are Clearing Members, all market makers require a Clearing 
Member's consent to clear transactions on their behalf in order to 
conduct business on the Exchange.\14\ According to the Exchange, the 
proposed rule change will permit Clearing Members to better monitor and 
manage the potential risks assumed by a market maker and provide 
Clearing Members with greater control and flexibility over their risk 
tolerance and exposure.\15\
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    \14\ Each market maker authorized to trade on the Exchange must 
obtain from a Clearing Member a ``Market Maker Letter of Guarantee'' 
wherein the Clearing Member accepts financial responsibility for all 
Exchange transactions made by the market maker. See ISE Gemini Rule 
808.
    \15\ See Notice, supra note 4, at 74825. Under ISE Gemini's 
current rules, the Exchange may share any Member-designated risk 
settings in the trading system with the Clearing Member that clears 
transactions on behalf of the Member. See ISE Gemini Rule 706(a).
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III. Proceedings To Determine Whether To Approve or Disapprove SR-ISE 
Gemini-2015-17 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change.
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    \16\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding. See id.
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings because the proposal raises 
important issues that warrant further public comment and Commission 
consideration. Specifically, the Commission is instituting proceedings 
to allow for additional analysis of, and input from commenters with 
respect to, the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\17\ which requires that the rules of a national securities 
exchange be designed, among other things, 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 general, 
to protect investors and the public interest.
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    \17\ 15 U.S.C. 78f(b)(5).
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    Under ISE Gemini's current rules, a market maker must enter 
continuous quotations for the options classes to which it is 
appointed.\18\ In return, the market maker receives certain benefits, 
including participation entitlements \19\ and an exception from the 
prohibition in Section 11(a) of the Act.\20\ As the Commission has 
stated in the past, a market maker must be subject to sufficient and 
commensurate affirmative obligations, including the obligation to hold 
itself out as willing to buy and sell options for its own account on a 
regular or continuous basis, to justify favorable

[[Page 11311]]

treatment.\21\ As discussed above, however, the Exchange now proposes 
to amend ISE Gemini Rule 804(g) to require Clearing Member approval 
before a market maker can resume trading after triggering a market-wide 
speed bump.
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    \18\ See ISE Gemini Rule 804(e).
    \19\ See, e.g., ISE Gemini Rule 713.
    \20\ 15 U.S.C. 78k(a).
    \21\ See, e.g., Securities Exchange Act Release No. 68341 
(December 3, 2012), 77 FR 73065, 73076 (December 7, 2012) (approving 
the application of Miami International Securities Exchange, LLC for 
registration as a national securities exchange); Securities Exchange 
Act Release No. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) 
(approving the application of Topaz Exchange, LLC for registration 
as a national securities exchange); Securities Exchange Act Release 
No. 76998 (January 29, 2016), 81 FR 6066 (February 4, 2016) 
(approving the application of ISE Mercury, LLC for registration as a 
national securities exchange).
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    The Exchange justifies the change as appropriate because, ``[w]hile 
in some cases this may result in a minimal delay for a market maker 
that wants to reenter the market quickly following a market-wide speed 
bump, the Exchange believes that Clearing Member approval . . . 
ensure[s] that the market maker does not prematurely enter the market 
without adequate safeguards . . .'' \22\ The Exchange, however, does 
not provide any basis for its statement that the proposed rule would 
result in only a ``minimal delay'' for a market maker seeking to resume 
quoting. Moreover, the Exchange does not address how the proposal 
impacts the continuous quoting obligations of market makers. The 
Commission accordingly believes the proposed rule change raises 
questions regarding the ability of market makers to meet their quoting 
obligations and, therefore, whether the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.
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    \22\ See Notice, supra note 4, at 74825.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the proposal 
is consistent with Sections 6(b)(5) \23\ or any other provision of the 
Act, or the rules and regulations thereunder. Although there does not 
appear to be any issue relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4 under the Act,\24\ 
any request for an opportunity to make an oral presentation.\25\
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    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 17 CFR 240.19b-4.
    \25\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by March 24, 2016. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by April 7, 
2016. In light of the concerns raised by the proposed rule change, as 
discussed above, the Commission invites additional comment on the 
proposed rule change as the Commission continues its analysis of the 
proposed rule change's consistency with Sections 6(b)(5) and 
6(b)(8),\26\ or any other provision of the Act, or the rules and 
regulations thereunder. The Commission asks that commenters address the 
sufficiency and merit of the Exchange's statements in support of the 
proposed rule change, in addition to any other comments they may wish 
to submit about the proposed rule change.
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    \26\ 15 U.S.C. 78f(b)(5), (b)(8).
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    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 Gemini-2015-17 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 Gemini-2015-17. 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 Gemini-2015-17 and 
should be submitted by March 24, 2016. Rebuttal comments should be 
submitted by April 7, 2016.
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    \27\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04638 Filed 3-2-16; 8:45 am]
BILLING CODE 8011-01-P