[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95211-95213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31116]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79624; File No. SR-ISEMercury-2016-24]


Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend ISE 
Mercury Rule 803 at Supplementary Material .02 in Connection With 
Business Continuity and Disaster Recovery Plans

December 20, 2016.
    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 December 12, 2016, ISE Mercury, LLC (``ISE Mercury'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. 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 ISE Mercury Rule 803 at 
Supplementary Material .02 in connection with business continuity and 
disaster recovery plans (``BC/DR Plans'') testing requirements for 
certain Members in connection with Regulation Systems Compliance and 
Integrity (``Regulation SCI'').\3\
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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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    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.

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
    The Exchange proposes to amend ISE Mercury Rule 803 at 
Supplementary Material .02 to conform the current rule text regarding 
BC/DR Plans testing requirements with that of NASDAQ PHLX LLC 
(``Phlx'') Rule 926,\4\ The NASDAQ Stock Market LLC (``Nasdaq'') Rule 
1170 \5\ and NASDAQ BX, Inc. (``BX'') Rule 1170.\6\
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    \4\ Phlx Rule 926 is titled ``The Exchange's Business Continuity 
and Disaster Recovery Plan Testing Requirements for Member 
Organizations and PSX Participants Pursuant to Regulation SCI.''
    \5\ Nasdaq Rule 1170 is titled ``Nasdaq's Business Continuity 
and Disaster Recovery Plan Testing Requirements for Members and 
Options Participants Pursuant to Regulation SCI.''
    \6\ BX Rule 1170 is titled ``The Exchange's Business Continuity 
and Disaster Recovery Plan Testing Requirements for Members and 
Options Participants Pursuant to Regulation SCI.''
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Background
    As adopted by the Commission, Regulation SCI applies to certain 
self-regulatory organizations (including the Exchange), alternative 
trading systems (``ATSs''), plan processors, and exempt clearing 
agencies (collectively, ``SCI entities''), and requires these SCI 
entities to comply with requirements with respect to the automated 
systems central to the performance of their regulated activities. Among 
the requirements of Regulation SCI is Rule 1001(a)(2)(v), which 
requires the Exchange and other SCI entities to maintain ``[b]usiness 
continuity and disaster recovery plans that include maintaining backup 
and recovery capabilities sufficiently resilient and geographically 
diverse and that are reasonably designed to achieve next business day 
resumption of trading and two-hour resumption of critical SCI systems 
following a wide-scale disruption.'' \7\ The Exchange has put extensive 
time and resources toward planning for system failures and already 
maintains robust BC/DR Plans consistent with the Rule.
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    \7\ 17 CFR 242.1001(a)(2)(v).
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    With respect to an SCI entity's BC/DR Plans, including its backup 
systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI 
entity to: ``[e]stablish standards for the designation of those members 
or participants that the SCI entity reasonably determines are, taken as 
a whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans.'' \8\ Paragraph 
(b) of Rule 1004 of Regulation SCI further requires each SCI entity to 
``[d]esignate members or participants pursuant to the standards 
established in paragraph (a) of [Rule 1004] and require participation 
by such designated members or participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the SCI entity, provided that such frequency 
shall not be less than once every 12 months.'' \9\
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    \8\ 17 CFR 242.1004(a).
    \9\ 17 CFR 242.1004(b).
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Proposal
    As set forth below, in connection with Regulation SCI, the Exchange 
is proposing to amend ISE Mercury Rule 803 at Supplementary Material 
.02 to conform with Phlx Rule 926, Nasdaq Rule 1170 and BX Rule 1170. 
Phlx Rule 926, Nasdaq Rule 1170 and BX Rule 1170 are similar to ISE 
Mercury Rule 803 at Supplementary Material.02, which incorporates the 
requirements of Rule 1004 of Regulation SCI as part of the Exchange's 
rules, and sets forth the notice, selection criteria and obligations of 
Members with respect to BC/DR Plans testing.
    The Exchange proposes to adopt rule text from Phlx Rule 926(a), 
Nasdaq Rule 1170(a) and BX Rule 1170(a), which will set forth the 
Exchange's obligations with respect to the selection of Members for 
testing. Specifically, the proposed rule will require the Exchange to 
``[e]stablish standards for the designation of those Members that the 
Exchange reasonably determines are, taken as a whole, the minimum 
necessary for the maintenance of fair and orderly markets in the event 
of the activation of such plans.'' The proposed rule further provides 
that ``[s]uch standards may include volume-based and/or market share-
based criteria, and may be adjusted from time to time by the 
Exchange.'' Lastly, the proposed rule will require the Exchange to 
provide public notice of the standards that it adopts.
    The Exchange is proposing to revise Rule 803 at Supplementary 
Material .02, which will set forth the obligations of the Exchange and 
its Members with respect to testing, similar to Phlx Rule 926(b), 
Nasdaq Rule 1170(b) and BX Rule 1170(b). Specifically, the proposed 
rule will require the Exchange to ``designate Members pursuant to the 
standards established in paragraph (a) of this rule and require 
participation by such designated Members in scheduled functional and 
performance testing of the operation of such plans, in the

[[Page 95212]]

manner and frequency specified by the Exchange, provided that such 
frequency shall not be less than once every 12 months.'' Moreover, the 
proposed rule will require the Exchange to provide at least 6 months 
prior notice to Members that are designated for mandatory testing. 
Lastly, the proposed rule will provide notice that participation in 
testing is a condition of membership for Members that are designated 
for testing.
    Today, ISE Mercury's Rule similarly sets forth the Exchange's 
obligations with respect to the selection of Members for testing. Like 
the proposed rule change, these standards for the designation of those 
Members must be reasonably determined by the Exchange, when taken as a 
whole, to have the minimum necessary for the maintenance of fair and 
orderly markets in the event of the activation of such plans. ISE 
Mercury's Rule requires the Exchange to provide public notice of the 
standards that it adopts. Further, ISE Mercury's Rule requires Primary 
Market Makers (``PMMs'') to participate in scheduled functional and 
performance testing of the operation of such plans with a frequency of 
not less than once every 12 months. These standards remain 
substantially the same under the proposed rule change.
    Today, ISE Mercury's Rule requires that at least 3 months prior to 
a scheduled functional and performance testing of the Exchange's 
business continuity and disaster recovery plans, the Exchange publishes 
the criteria to be used by the Exchange to determine which PMMs will be 
required to participate in such testing, and notifies those PMMs that 
are required to participate based on such criteria. The Phlx, Nasdaq 
and BX rules require at least 6 months prior notice to Members that are 
designated for mandatory testing. This change would expand the notice 
period. Also, ISE Mercury has specific provisions for PMMs with respect 
to selection for testing. Today, ISE Mercury provides that PMMs that 
have been determined by the Exchange to contribute a meaningful 
percentage of the Exchange's overall volume, measured on a quarterly or 
monthly basis, will be required to participate in scheduled functional 
and performance testing. The Exchange may also consider other factors 
in determining the PMMs that 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 who collectively account for a certain percentage of market 
share on the Exchange. The proposed rule text does not require a 
different treatment for PMMs as compared to other market participants. 
Today, Phlx, Nasdaq and BX select market participants based on volume 
and/or market share, regardless of market making activity. The proposed 
rule text would not specifically mandate PMMs however, given the 
importance of market makers on the Exchange and the volume they 
traditionally trade, they are likely to be required to participate in 
business continuity and disaster recovery plans under the proposed rule 
change as they are today.
    The Exchange would continue to encourage all Members to connect to 
the Exchange's backup systems and to participate in testing of such 
systems; \10\ however, certain Members will be obligated to participate 
in BC/DR Plans testing. In adopting the rule text of Phlx Rule 926, 
Nasdaq Rule 1170 and BX Rule 1170, the Exchange will require mandatory 
participation in BC/DR Plans testing by those Members that the Exchange 
reasonably determines are, taken as a whole, the minimum necessary for 
the maintenance of fair and orderly markets in the event of the 
activation of such plans on the Exchange. The Exchange believes that 
using overall participation on its markets (by volume and/or market 
share) as a measure to select Members for mandatory participation in 
BC/DR Plans testing is a reasonable means by which it can determine 
which Members are necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans. For each BC/DR 
Plans test cycle, the Exchange will select the top five Members on the 
Exchange based on the Exchange's measure of overall participation. The 
Exchange notes that when considering volume, it will exclude contracts 
traded on PrecISE[supreg].\11\ The Exchange has provided notice of the 
initial selection criteria and measurement period to its Members.\12\ 
All notices concerning BC/DR Plans testing will be posted on the 
Exchange's Web site.
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    \10\ In this regard, the Exchange will allow any Member to 
participate in the testing of the Exchange's BC/DR Plans, which is 
consistent with the BC/DR Plans. See SCI Adopting Release, supra 
note 3 at 72350. The Exchange will provide instructions on how a 
Member must inform the Exchange of its interest in participating in 
an upcoming BC/DR Plans test via the announcement of the test date. 
A Member must provide the Exchange notice of its interest to 
participate at least a week prior to the test date and must have the 
appropriate connection for testing in place.
    \11\ PrecISE is [sic] front-end order and execution management 
system for trading options and stock-option combinations.
    \12\ See ISE Mercury Circular 2016-16.
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    The Exchange is proposing to initially select Members with the 
highest levels of trading volume on the Exchange over four calendar 
months (``Measurement Period'') as mandatory testing for Members 
[sic].\13\ Specifically, the Measurement Period will be the four 
calendar months of trading immediately prior to the Exchange's 
announcement of the next BC/DR Plans test date. The Measurement Period 
will always begin at a point after the Exchange announces the criteria 
to be used in the next BC/DR Plans test. By way of example, if on 
October 6, 2017 the Exchange announced the BC/DR Plans test selection 
criteria and on March 2, 2018 the Exchange announced a BC/DR Plans test 
date of September 8, 2018, the Measurement Period used to select Member 
subject to mandatory testing would be November 2017 through February 
2018. Members not obligated to participate that wish to participate in 
this test must inform the Exchange no later than September 1, 2018, 
based on the aforementioned timeline.\14\
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    \13\ The Exchange may change the total number of Members 
selected from time to time.
    \14\ See supra note 10.
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    The proposed rule change is intended to provide consistency across 
the six options exchanges operated by Nasdaq, Inc. in regard to the 
standards established for the designation of Members that are required 
to participate in the Exchange's business continuity and disaster 
recovery testing. In turn, participants that are Members on multiple 
exchanges operated by Nasdaq, Inc. will be provided greater uniformity 
and ease of testing with the establishment of consistent standards 
across the multiple Nasdaq exchanges.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\15\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act,\16\ in particular, in that it is 
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; and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The proposal will ensure that the Members 
necessary to ensure the maintenance of fair and orderly markets are 
properly designated consistent with

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Rule 1004 of Regulation SCI. Specifically, the proposal will adopt 
clear and objective criteria with respect to the designation of Members 
that are required to participate in the testing of the Exchange's BC/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 BC/DR 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.'' \17\ The Exchange believes that this proposal is consistent 
with such authority and legal responsibility.
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    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ See SCI Adopting Release, supra note 3 at 72350.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. To 
the contrary, the proposal is not a competitive proposal but rather is 
necessary for the Exchange's compliance with Regulation SCI.

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

    No written comments were either solicited or received.

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

    Because the foregoing 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, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 has satisfied this requirement.
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-ISEMercury-2016-24 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-ISEMercury-2016-24. 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-ISEMercury-2016-24 and 
should be submitted on or before January 17, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31116 Filed 12-23-16; 8:45 am]
 BILLING CODE 8011-01-P