[Federal Register Volume 83, Number 238 (Wednesday, December 12, 2018)]
[Notices]
[Pages 63922-63924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26836]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84741; File No. SR-ISE-2018-97]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend
Supplementary Material .02 to Rule 715 Regarding Cancel and Replace
Orders
December 6, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 63923]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 29, 2018 Nasdaq ISE, LLC (``ISE'' 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 Supplementary Material .02 to Rule
715 regarding Cancel and Replace Orders.
The text of the proposed rule change is available on the Exchange's
website at http://ise.cchwallstreet.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 Supplementary Material .02 to Rule
715 regarding Cancel and Replace Orders to: (i) Correct an
inconsistency between the Exchange's rule text and the operation of the
System \3\ by removing the reference to Rule 710, (ii) update rule
cross-references, and (iii) make other non-substantive, technical
changes.
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\3\ The term ``System'' means the electronic system operated by
the Exchange that receives and disseminates quotes, executes orders
and reports transactions. See Rule 100(a)(63).
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Today, a member has the option of either sending in a cancel order
and then separately sending in a new order which serves as a
replacement of the original order (two separate messages), or sending a
single cancel and replace order in one message (i.e., a Cancel and
Replace Order). Specifically, Supplementary Material .02 to Rule 715
defines a Cancel and Replace Order as a single message for the
immediate cancellation of a previously received order and the
replacement of that order with a new order.\4\ The replacement portion
of the Cancel and Replace Order is treated as a new order and therefore
goes through price or other reasonability checks as a result of being
viewed as such.\5\ If the replacement portion of a Cancel and Replace
Order does not satisfy the System's price or other reasonability
checks, the existing order will be cancelled and not replaced.\6\ The
Exchange notes, however, that when it initially codified Cancel and
Replace Orders in its Rulebook as part of SR-ISE-2017-03, it
inadvertently included Rule 710 within the list of price reasonability
checks. In SR-ISE-2017-03, the Exchange explained that the System
conducts price or other reasonability checks for Cancel and Replace
Orders to validate such orders against the current market conditions
prior to proceeding with the request to modify the order.\7\ Rule 710,
which relates to the minimum price variations applicable to options
series traded on the Exchange, does not involve the System considering
the current market at the time of the Cancel and Replace Order, and an
incoming Cancel and Replace Order that fails the minimum price
variation checks in Rule 710 would not result in the existing order
being cancelled and not replaced.\8\ The Exchange therefore proposes to
remove the reference to Rule 710 from the list of price or other
reasonability checks to conform its rule text to the System.
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\4\ If the previously placed order is already filled partially
or in its entirety, the replacement order is automatically cancelled
or reduced by the number of contracts that were executed. See
Supplementary Material .02 to Rule 715.
\5\ Supplementary Material .02 to Rule 715 further provides how
the replacement portion may retain the priority of the original
order, provided certain specified conditions are met. The manner in
which the Exchange treats priority with respect to Cancel and
Replace Orders is not changing under this proposal.
\6\ See Securities Exchange Act Release No. 80432 (April 11,
2017), 82 FR 18191 (April 17, 2017) (SR-ISE-2017-03) (memorializing
Cancel and Replace Orders in Supplementary Material .02 to Rule 715
as part of the Exchange's system migration to INET technology).
\7\ Id.
\8\ In this instance, the System would simply reject the cancel
and replace message as an invalid instruction. The Exchange notes
that the previous T7 system likewise treated Cancel and Replace
Orders in this manner.
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The Exchange also proposes to update the various rule references
related to the price reasonability checks within this provision to
refer to the current rules.\9\ Finally, the Exchange proposes other
non-substantive, technical changes within Supplementary Material .02 to
Rule 715 to capitalize ``Cancel and Replace Order'' for consistency,
and to capitalize ``System,'' which is a defined term.
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\9\ In particular, Rules 711(c) and 714(b)(2) are now Rules
714(b)(1)(B) and 714(b)(1)(A), respectively, pursuant to SR-ISE-
2018-80. See Securities Exchange Act Release No. 84237 (September
20, 2018), 83 FR 48660 (September 26, 2018). Rule 722(b)(1) is now
Rule 722(c)(1) pursuant to SR-ISE-2018-56. See Securities Exchange
Act Release No. 84373 (October 5, 2018), 83 FR 51730 (October 12,
2018). Finally, paragraphs (b), (c), and (d) of Supplementary
Material .07 to Rule 722 are now paragraphs (a)(1)(A), (b), and
(c)(1), respectively, pursuant to SR-ISE-2018-55. See Securities
Exchange Act Release No. 83464 (June 19, 2018), 83 FR 29583 (June
25, 2018).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ in particular, in that it is designed 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. The Exchange's proposal corrects an inadvertent error in
Supplementary Material .02 to Rule 715, which currently includes Rule
710 within the list of price or other reasonability checks. As
discussed above, including Rule 710 is inconsistent with the operation
of the Exchange's System because an incoming Cancel and Replace Order
which fails the minimum price variation checks in Rule 710 does not
result in the existing order getting cancelled and not replaced. This
rule change would amend the rule text to reflect ISE's current
practice, and should avoid potential confusion about how the System
processes Cancel and Replace Orders today.\12\ Furthermore, the
Exchange's proposal to update the rule references and make other non-
substantive technical changes, as further described above, will bring
greater transparency to its Rulebook thereby protecting investors and
the public interest by reducing potential for investor confusion.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ See note 8 above.
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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
impose any burden on competition not necessary or appropriate in
furtherance
[[Page 63924]]
of the purposes of the Act. All of the proposed changes are intended to
bring greater transparency to the Exchange's Rulebook, and therefore
does not unduly burden competition.
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 \13\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 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 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-2018-97 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-2018-97. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2018-97 and should be submitted on
or before January 2, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26836 Filed 12-11-18; 8:45 am]
BILLING CODE 8011-01-P