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Notice

Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Delay the Implementation of Functionality Associated With Stock-Option Orders

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Start Preamble March 27, 2017.

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 March 21, 2017, the International Securities Exchange, LLC (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. ISE filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the Act [3] and Rule 19b-4(f)(6) thereunder.[4] 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 delay the implementation of functionality associated with Stock-Option Orders [5] in connection with a system migration to Nasdaq INET technology.

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

Today, ISE accepts complex orders, including Stock-Option Orders that contain a stock component. Today, complex orders, including Stock-Option Orders, are permitted to: (1) Leg into the regular market where they may trade against bids and offers for the individual legs pursuant to Rule 722(b)(3)(ii) and (iii) (“legging”); [6] or (2) execute against another order within the complex order book.

The Exchange proposes to delay the implementation of legging functionality for Stock-Option Orders in connection with a migration to the INET platform. INET is the proprietary core technology utilized across Nasdaq's global markets and utilized on The NASDAQ Options Market LLC (“NOM”), NASDAQ PHLX LLC (“Phlx”) and NASDAQ BX, Inc. (“BX”) (collectively, “Nasdaq Exchanges”). The migration of ISE to the Nasdaq INET architecture would result in higher performance, scalability, and more robust architecture. With this system migration, the Exchange intends to adopt certain trading functionality currently utilized at Nasdaq Exchanges.[7]

The Exchange desires to delay the implementation of the legging functionality for Stock-Option Orders on INET at this time and rollout this functionality within one year of the date of the filing of this proposal. The Exchange is staging the re-platform to provide maximum benefit to its Members while also ensuring a successful rollout. This delay in implementing the legging functionality for Stock-Option Orders will provide the Exchange additional time to test and implement this functionality on the INET platform.Start Printed Page 16085

The Exchange filed a proposal to begin a system migration to Nasdaq INET in Q2 of 2017.[8] The migration will be on a symbol by symbol basis as specified by the Exchange in a notice to Members.[9] The Exchange is proposing to implement this rule change on the INET platform as the symbols migrate to that platform. The legging functionality for Stock-Option Orders will be available until the symbol migrates to the INET platform. Once the symbol migrates to INET the legging functionality for Stock-Option Orders will not be available. However, Stock-Option Orders will continue to be executed against other Stock-Option Orders in the complex order book. The Exchange will issue an Options Trader Alert to all Members notifying them that legging functionality for Stock-Option Orders will no longer be available with the symbol migration to INET. The Exchange proposes to launch the legging functionality on the INET platform within one year from the date of filing of this rule change to be announced in an Options Trader Alert.

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 because the Exchange desires to rollout the legging functionality for Stock-Option Orders at a later date to allow additional time to rebuild this technology on the new platform.

By delaying the implementation of functionality with the symbol migration to INET, the Exchange will have additional time to test and implement this functionality. The Exchange will provide Members with ample notice of the turn-off of this functionality and note within that notice that Stock-Option Orders will continue to be executed against other Stock-Option Orders. The Exchange will continue to provide notifications to Members to ensure clarity about the availability of this functionality with the symbol migration. The Exchange will issue an Options Trader Alert indicating when the legging functionality will become available on the INET platform.

The Exchange does not anticipate any significant impact with respect to execution quality. The priority rules will continue to apply with respect to these Stock-Option Orders respecting Priority Customer Orders.[12] The Exchange notes that Phlx does not offer legging functionality for Stock-Option Orders.[13]

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 of the purposes of the Act. The Exchange does not believe that the proposed rule change will impact the intense competition that exists in the options market. Members will be able to continue to execute complex orders on ISE, except that Stock-Option Orders will only be permitted to trade with other Stock-Option Orders in the complex order book as the symbol migrates to INET. The Exchange does not believe that the proposed rule change will impose any burden on intra-market competition because all Members uniformly will only be permitted to trade with other Stock-Option Orders in the complex order book as the symbol migrates to INET.

The Exchange proposes to launch the legging functionality on the INET platform within one year from the date of filing of this rule change to be announced in an Options Trader Alert.

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 [14] and subparagraph (f)(6) of Rule 19b-4 thereunder.[15]

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

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-2017-28. 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 Start Printed Page 16086filing 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-2017-28 and should be submitted on or before April 21, 2017.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[16]

Eduardo A. Aleman,

Assistant Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(iii).

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5.  A stock-option order is an order to buy or sell a stated number of units of an underlying stock or a security convertible into the underlying stock (“convertible security”) coupled with the purchase or sale of options contract(s) on the opposite side of the market representing either (A) the same number of units of the underlying stock or convertible security, or (B) the number of units of the underlying stock necessary to create a delta neutral position, but in no case in a ratio greater than eight-to-one (8.00), where the ratio represents the total number of units of the underlying stock or convertible security in the option leg to the total number of units of the underlying stock or convertible security in the stock leg. See ISE Rule 722(a)(2).

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6.  Supplementary Material .02 to Rule 722 also contains provisions relevant to the legging of Stock-Option Orders specifically.

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7.  See Securities Exchange Act Release No. 80075 (February 21, 2017), 82 FR 11975 (February 27, 2017) (SR-ISE-2017-02) (Notice of Filing of Proposed Rule Change to Amend Various Rules in Connection with a System Migration to Nasdaq INET Technology).

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8.  Id. This proposal is not approved.

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9.  The Exchange will issue an Options Trader Alert prior to the migration and will specify the dates that symbols will migrate to the INET platform.

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12.  See ISE Rule 722(b)(2).

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13.  See Phlx Rule 1098.

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14.  15 U.S.C. 78s(b)(3)(A)(iii).

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15.  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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[FR Doc. 2017-06334 Filed 3-30-17; 8:45 am]

BILLING CODE 8011-01-P