On September 30, the International Securities Exchange, LLC (ISE) proposed amendments to ISE Rules 810 (Limitations on Dealings) and 717 (Limitations on Orders) concerning information barriers between a member firm’s Electronic Access Member (EAM) unit and its affiliated Primary Market Maker or Competitive Market Maker (Market Maker) units. In pertinent part, the current version of Rule 810 bilaterally restricts the sharing of order information between a member’s EAM unit handling customer/agency business and its affiliated Market Maker units. The proposed amendments to Rule 810 will allow an EAM to know where and at what price an affiliated Market Maker is either quoting or has orders on the order book and to use that information to influence routing decisions. The proposed amendments also will allow an EAM to route a customer order to ISE where its affiliated Market Maker is either quoting or has an order on the order book so that the two orders immediately interact.
Additionally, ISE Rule 717 requires an EAM handling both sides of a trade to expose certain orders on the limit order book for at least one second before executing them as principal or against solicited orders from other broker-dealers. If a member firm handling both sides of a trade inadvertently executes such orders without exposing them for the required one second, ISE Supplementary Material .06 to Rule 717 permits that member firm to demonstrate that the orders were entered without knowledge of a pre-existing order on the book represented by the same firm by providing evidence of effective information barriers between the persons or business units entering the orders at the time orders were entered onto ISE. To accommodate the proposed amendment to Rule 810, ISE also proposes to amend Supplementary Material .06 to Rule 717 to specify that orders from a member’s EAM and affiliated Market Maker unit may interact within one second without violating Rule 717. To avoid such a violation, the member firm must be able to demonstrate that the routed customer order was marketable, the EAM was not handling the affiliated Market Maker quote or order, and the affiliated Market Maker quote or order was in existence at the time the customer order was entered into ISE.
Interested persons may submit comments on these proposed amendments to the Securities and Exchange Commission by October 27.
ISE’s proposed rule filing is available here.