[Federal Register Volume 81, Number 71 (Wednesday, April 13, 2016)]
[Notices]
[Pages 21933-21935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08428]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77556; File No. SR-ISE Mercury-2016-08]


Self-Regulatory Organizations; ISE Mercury; Notice of Filing of 
Proposed Rule Change To Limit Mandatory Participation in Scheduled 
Functional and Performance Testing Under Regulation SCI to Only Those 
Primary Market Makers That Meet Specified Criteria

April 7, 2016.
    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 March 31, 2016, ISE Mercury, LLC (the ``Exchange'' or ``ISE 
Mercury'') filed with the Securities and Exchange 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.
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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 amend Rule 803, Obligations of Market 
Makers, to limit mandatory participation in scheduled functional and 
performance testing, under Regulation Systems Compliance and Integrity 
(``Regulation SCI''),\3\ to those Primary Market Makers (``PMMs'') that 
contribute a meaningful percentage of the Exchange's overall volume, 
measured on a quarterly or monthly basis. The Exchange proposes to also 
consider other factors in determining the PMMs that will be required to 
participate in scheduled functional and performance testing of the 
Exchange's business continuity and disaster recovery plans 
(collectively ``DR Plans''), including average daily volume traded on 
the Exchange measured on a quarterly or monthly basis, or PMMs that 
collectively account

[[Page 21934]]

for a certain percentage of market share on the Exchange or within a 
specific product. In addition, the Exchange proposes to publish the 
criteria to be used by the Exchange to determine which PMMs will be 
required to participate in such testing, and notify those PMMs that are 
required to participate based on such criteria. The text of the 
proposed rule change is available on the Exchange's Web site at 
www.ise.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.
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    \3\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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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 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 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
    On November 19, 2014, the Securities and Exchange Commission 
unanimously voted to adopt Regulation SCI, which is a set of rules 
designed to strengthen the technology infrastructure of the U.S. 
securities markets.\4\ Specifically, the rules are designed to reduce 
the occurrence of systems issues, improve resiliency when systems 
problems do occur, and enhance the Commission's oversight and 
enforcement of securities market technology infrastructure.\5\
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    \4\ Id.
    \5\ Division of Trading and Markets, Responses to Frequently 
Asked Questions Concerning Regulation SCI at https://www.sec.gov/divisions/marketreg/regulation-sci-faq.shtml.
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    Regulation SCI applies to ``SCI entities,'' a term which includes 
SROs such as ISE Mercury. Regulation SCI requires SCI entities to, 
among other things, (1) establish written policies and procedures 
reasonably designed to ensure that their systems have levels of 
capacity, integrity, resiliency, availability, and security adequate to 
maintain their operational capability; (2) mandate participation by 
designated members in scheduled testing of the operation of their 
business continuity and disaster recovery plans, including backup 
systems, and to coordinate such testing on an industry- or sector-wide 
basis with other SCI entities; (3) take corrective action with respect 
to ``SCI events'' (such as systems disruptions, systems compliance 
issues, and systems intrusions), and to notify the Commission of such 
events; (4) disseminate information about certain SCI events to 
affected members and, for certain ``major'' SCI events, to all members; 
and (5) review their systems by objective, qualified personnel at least 
annually, to submit quarterly reports regarding completed, ongoing, and 
planned material changes to their SCI systems to the Commission, and to 
maintain certain books and records.\6\
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    \6\ Id.
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    In accordance with Rule 1004 of Regulation SCI, the Exchange 
adopted Rules 803 and 1903 to designate all PMMs \7\ and Linkage 
Handlers,\8\ as the minimum necessary for the maintenance of a fair and 
orderly market should the Exchange's DR Plans be activated.\9\ The 
Exchange also mandated participation by designated members in scheduled 
functional and performance testing of the operation of such DR 
Plans.\10\
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    \7\ A PMM posts two-sided continuous quotations in all of the 
options classes to which it is appointed and undertakes special 
responsibilities for maintaining fair and orderly markets. PMM 
memberships are represented by PMM Trading Rights. The options 
classes trading on ISE Mercury are divided into groups or ``bins'', 
each with one PMM. One PMM member may, however, represent more than 
one bin.
    \8\ A Linkage Handler is a broker that is unaffiliated with the 
Exchange with which the Exchange has contracted with to provide 
routing services, by routing certain orders, to other exchanges as 
agent in connection with the Options Order Protection and Locked/
Crossed Market Plan. See .03 to Supplementary Material to Rule 1901.
    \9\ On January 8, 2016, ISE Mercury submitted Amendment No. 2 to 
the Form 1 Application, which included an amended Rule 803 to comply 
with the requirements of Regulation SCI. ISE Mercury's amended Rule 
803 followed the rule filings by ISE Mercury's affiliated exchanges, 
International Securities Exchange, LLC and ISE Gemini, LLC, which 
amended Rule 803 to comply with the requirements of Regulation SCI. 
See Exchange Act Release No. 76334 (November 3, 2015) 80 FR 69258 
(November 9, 2015) (SR-ISE-2015-35) and Exchange Act Release No. 
76332 (November 3, 2015), 80 FR 69266 (November 9, 2015) (SR-ISE 
Gemini-2015-23).
    \10\ Id.
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    The Exchange has reevaluated its designation of all PMMs as the 
minimum necessary for the maintenance of a fair and orderly market 
should the Exchange's DR Plans be activated and now believes that 
designating all PMMs is more than the minimum necessary to maintain a 
fair and orderly market should its DR Plans be activated. The Exchange 
proposes to revise Rule 803 and limit mandatory participation in 
scheduled functional and performance testing, under Regulation SCI and 
ISE Mercury Rule 803, to those PMMs that contribute a meaningful 
percentage of the Exchange's overall volume, measured on a quarterly or 
monthly basis. The Exchange proposes to consider other factors in 
determining which PMMs will be required to participate in scheduled 
functional and performance testing, including average daily volume 
traded on the Exchange measured on a quarterly or monthly basis, or 
PMMs that collectively account for a certain percentage of market share 
on the Exchange or within a specific product. The Exchange represents 
that it will publish the criteria \11\ to be used by the Exchange to 
determine which PMMs will be required to participate in such testing, 
and notify those PMMs that are required to participate based on such 
criteria.
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    \11\ This criteria will be published by the Exchange, in a 
regulatory information circular, no later than the effective date of 
this rule filing.
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    The Exchange notes that it encourages all PMMs to connect to the 
Exchange's backup systems and to participate in testing of such 
systems. However, in revising the requirements in proposed Rule 803, 
the rule will subject only those PMMs to mandatory testing that the 
Exchange believes are, taken as a whole, the minimum necessary to 
maintain fair and orderly markets. The Exchange believes that 
designating PMMs to participate in mandatory testing because they, for 
example, account for a significant portion of the Exchange's overall 
volume or collectively account for a certain percentage of market share 
on the Exchange is a reasonable means to ensure the maintenance of a 
fair and orderly market on the Exchange should its DR Plans be 
activated.
2. Statutory Basis
    The Exchange believes that the proposed rule change 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.\12\ In 
particular, the proposal is consistent with section 6(b)(5) of the 
Act,\13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).

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[[Page 21935]]

    The Exchange believes the proposed rule revision is consistent with 
the Exchange Act because it complies with Regulation SCI's 
requirements. ISE Mercury's proposed rule designates only those PMMs it 
determines are necessary for the maintenance of a fair and orderly 
market if the Exchange's DR Plans are activated. Additionally, the 
proposal will ensure that the PMMs necessary to ensure the maintenance 
of a fair and orderly market are properly designated consistent with 
Rule 1004 of Regulation SCI. Specifically, as proposed, the Exchange 
will adopt clear and objective criteria with respect to the designation 
of PMMs that are required to participate in the testing of the 
Exchange's DR Plans, as well as appropriate notification regarding such 
designation. As set forth in the SCI Adopting Release, ``SROs have the 
authority, and legal responsibility, under section 6 of the Exchange 
Act, to adopt and enforce rules (including rules to comply with 
Regulation SCI's requirements relating to [business continuity and 
disaster recovery] testing) applicable to their members or participants 
that are designed to, among other things, 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.'' \14\ The Exchange believes 
that this proposal is consistent with such authority and legal 
responsibility.
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    \14\ See SCI Adopting Release, supra note 4 at 72350.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act because ISE Mercury is implementing the requirements 
of Regulation SCI.

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 
this proposed rule change. The Exchange has not received any written 
comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\ The Exchange provided the Commission with 
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 the proposed rule 
change, or such shorter time as designated by the Commission, as 
required by Rule 19b-4(f)(6).
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    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. 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 No. SR-ISE Mercury-2016-08 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE Mercury-2016-08. 
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 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 Mercury-2016-08 and 
should be submitted by May 4, 2016.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08428 Filed 4-12-16; 8:45 am]
BILLING CODE 8011-01-P