This PDF is the current document as it appeared on Public Inspection on 11/13/2013 at 08:45 am.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), and Rule 19b-4 thereunder, notice is hereby given that, on October 31, 2013, the International Securities Exchange, LLC (the “Exchange” or the “ISE”) filed with the Securities and Exchange Commission (“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.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend its rules to clarify Rule 700, “Days and Hours of Business,” and Rule 702, “Trading Halts.”
The text of the proposed rule change is available on the Exchange's Internet Web site at 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 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 Start Printed Page 68498self-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
The Exchange is proposing to amend its rules to clarify when it will be open for trading along with when trading halts on underlying securities will inhibit trading on the Exchange. The Exchange is submitting this proposed rule change as a competitive response to a recently approved rule filing submitted by the Chicago Board Options Exchange (“CBOE”). Specifically, the Exchange is proposing to amend its rules to clarify that it will not be solely dependent upon the “primary market” when determining when to open and/or halt securities. Instead, the Exchange is proposing to clarify in its rules that it will be open if there is ample liquidity in the underlying market for the security. Generally, the national equity exchanges have similar core business hours. With this proposal, the Exchange is attempting to clarify in its rules that it can remain open to trade options during such business hours even if the “primary market” of the underlying securities is not open for business. The Exchange believes that the proposed changes will allow the markets to continue to function in an instance where all exchanges may not be halted. In addition, the Exchange believes the proposed changes will bring greater clarity to its Members regarding when the Exchange will be open for trading.
Currently, Exchange Rule 700 provides that no Member shall make any bid, offer, or transaction on the Exchange before or after business hours. As an administrative cleanup change, the Exchange is proposing to eliminate this language as it is no longer relevant. Executions may only happen during business hours, however, Members have the ability to submit information in the Exchange's electronic trading system outside of business hours. The Exchange believes deleting this language would bring greater clarity to Exchange rules while updating the rule text to the current trading environment.
Next, the Exchange is proposing to add language to Rule 700(a) to specify that the Exchange will not solely rely on the “primary market” of an underlying security to determine whether the Exchange may trade the option for such security. The Exchange believes that the proposed rule change will specify that if there is an ample market in the underlying security, the Exchange has the authority to trade the option even if the primary market is not open. The Exchange believes that allowing such discretion will create a lesser market disruption if the primary exchange is unable to open for trading.
Further, Rule 702 specifies when the Exchange will halt trading. Specifically, Rule 702(a)(1) lists factors that may be considered in making that determination. Currently, Rule 702(a)(1)(i) lists, as a factor in the decision with respect to options, “trading in the underlying security has been halted or suspended in the primary market.” The Exchange is proposing to add language to state, instead of the “primary market,” that the Exchange may factor in if “trading in the underlying security has been halted or suspended in one or more of the markets trading the underlying security.” The Exchange is proposing to make similar changes in Rule 702(a)(2)(iv) which lists factors in making the determination in an Equity Security (as defined in ISE Rule 2100). The Exchange believes the proposed changes will grant discretion for the Exchange to be open for trading when there is a robust market in the underlying security rather than limit it to only when the “primary market” is open.
Next, the Exchange is proposing to amend Rule 702(a)(3) so that a designated Exchange official may halt trading in an option not only if the “primary market” of the security has halted trading but if the security has been halted in “one or more of the markets trading the underlying security.” Under the current rule, the designated Exchange official almost certainly must halt trading whenever there is a halt of trading in the underlying security. The Exchange believes this proposed change will provide the designated Exchange official the discretion and the authority to halt trading in an option if the primary market for an underlying security is not open for business however that security is being traded elsewhere. For example, if the primary market is unable to open due to a natural disaster, or other circumstance, but other stock exchanges are trading the underlying security, the proposed change will allow the Exchange to continue trading the overlaying options.
The Exchange believes the proposed changes will allow the Exchange to trade options for underlying stocks even if that underlying listing market shall be unable to trade due to an emergency or other circumstance unique to that stock exchange. Making these proposed changes will allow the Exchange to trade options when an underlying security is trading on any national securities exchange regardless of where that security is formally listed. The proposed discretion attempts to create a lessor [sic] market disruption if a listing or primary market is unable to trade due to some circumstance. Because of the connectivity of the national securities exchanges today, the Exchange believes limiting its ability to trade options to when the primary market of the underlying security is open might hurt investors if some circumstance should render the primary exchange inoperable. In addition, the Exchange believes that the reference to “primary market” is ambiguous and has the potential to cause confusion. Thus, the Exchange believes by further clarifying the language, it is clearer when the Exchange will be open for trading.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder, including the requirements of Section 6(b) of the Act. In particular, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5)  requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest.
The Exchange believes the proposed rule change protects investors by allowing trading in options as long as Start Printed Page 68499the underlying security is trading on another exchange. Instead of only relying on the “primary market,” the proposed rule change attempts to clarify when options will trade on the Exchange to allow greater continuity in the marketplace. By allowing the Exchange to trade options whenever the underlying securities are trading, the proposed rule change seeks to create less of a disconnect if the “primary” market should be experiencing technical difficulties, an emergency, or other situation that may inhibit it to be connected to the marketplace.
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 Act. The Exchange does not believe the proposed rule change imposes any burden on intramarket competition because it will apply to all Members [sic]. In addition, the Exchange does not believe the proposed rule change will impose any burden on intermarket competition as it will merely give the Exchange discretion to trade options when there is an ample market for the underlying security of those options. Thus, the Exchange believes the proposed rule change will promote competition by giving the Exchange the ability to trade options when the underlying security is trading anywhere, and, thus, helping the Exchange to better participate in the marketplace. Additionally, as noted above, the proposed rule change is a competitive response to a recently approved rule filing submitted by the CBOE. ISE believes this proposed rule change is necessary to permit fair competition among the options exchanges.
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
The Exchange believes that the foregoing proposed rule change may take effect upon filing with the Commission pursuant to Section19(b)(3)(A)  of the Act and Rule 19b-4(f)(6) thereunder  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 after its filing date, or such shorter time as the Commission may designate.
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:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
- Send an email to firstname.lastname@example.org. Please include File Number SR-ISE-2013-55 on the subject line.
- Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2013-55. 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-2013-55 and should be submitted on or before December 5, 2013.Start Signature
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Kevin M. O'Neill,
3. See Securities Exchange Act Release No. 69558 (May 10, 2013), 78 FR 28911 (May 16, 2013) (SR-CBOE-2013-035).Back to Citation
4. See, e.g., New York Stock Exchange Rule 51(a) and BATS Exchange Rule 1.5(w) which describes regular trading hours as 9:30 a.m. through 4:00 p.m. Eastern.Back to Citation
5. See Exchange Rule 700.Back to Citation
6. See Exchange Rule 702. The Exchange is not proposing any change to Rule 702(c), Trading Pauses, because a trading halt with respect to options is mandatory and not subject to discretion whenever trading in the security underlying the option contract has been paused by the primary listing market.Back to Citation
9. See supra note 3.Back to Citation
[FR Doc. 2013-27207 Filed 11-13-13; 8:45 am]
BILLING CODE 8011-01-P