Historical RegSCI Notices

It has recently come to the attention of ISE that the allocation for  “Flash” auctions are not in compliance with the rules regarding allocation in a certain set of circumstances for ISE, ISE Gemini and ISE Mercury.  If, during the exposure period of a Flash auction, the order were to become executable on the exchange at the prevailing NBBO, the exposure period is terminated, and the order should be executed in accordance with Rule 1901 Supplementary Material .02.  However, the system is erroneously providing the Primary Market Maker (PMM) an enhanced allocation, pursuant to Rule 713 Supplementary Material .01 (b), after customer orders and ahead of other non-customer interest which allocate pro-rata, if the PMM is present at that price. 

The issue began on ISE on December 7, 2007.  The failure began on ISE Gemini on August 5, 2013.  The failure began on ISE Mercury on February 16, 2016. 

The Exchanges are currently assessing how to resolve and correct this issue.  Additional details on potential solutions and an associated timeline will be provided as they are available.

It has recently come to the attention of ISE Gemini that ISE's best bids and offers ("BBOs") were excluded from ISE Gemini's national best bid and offer ("NBBO") calculation.  The failure to include ISE's BBOs in the ISE Gemini NBBO began on October 25, 2016.  Immediately upon detection of the failure on November 21, 2016, ISE Gemini was able to correct the situation intraday and restore ISE’s BBOs in the ISE Gemini NBBO calculation.  Failure to include ISE’s BBOs in the ISE Gemini NBBO calculation could have resulted in a trade-through of a better priced market on ISE.  ISE Gemini is currently investigating trade executions during the effected time range to determine the impact such failure had on ISE Gemini's market participants.

12/15/2016 2:59:23 PM

As previously reported in October 2016, it had come to ISE’s, ISE Gemini’s and ISE Mercury’s (collectively referred to hereinafter as the “Exchanges”) attention that they were not in compliance with rules regarding the handling of Preferenced Orders in a limited number of circumstances involving orders that are allowed to trade though the NBBO.  Effective November 10, 2016 for ISE and ISE Gemini and October 25, 2016 for ISE Mercury this systems compliance issue has been resolved and the Exchanges are now handling Preferenced Orders in accordance with their rules.

Specifically for ISE, its trading system has been corrected to confirm that the preferred Market Maker was quoting at the NBBO in determining the preferred Market Maker’s allocation when a Preferenced Intermarket Sweep Order (“ISO”) is matched and when Complex Orders leg into the regular market.  With respect to ISE Gemini and ISE Mercury that do not currently trade complex orders, their trading systems were corrected to confirm that the preferred Market Maker was quoting at the NBBO in determining the preferred Market Maker’s allocation when a Preferenced ISO is matched.

11/30/2016 6:40:54 AM

In December 2015, ISE discovered that in certain limited situations, a software error resulted in the price protections provided for in ISE Rule 722, Supplementary Material .07(c) were not available for a resting market order submitted with a “Do Not Trade Through” (“DNTT”) modifier when such an order trades with another complex order.  A fix for the software error was developed as part of Release 11.1 and deployed into production on November 21, 2016.  Therefore, the systems compliance issue as discussed above has been resolved to apply the price protections provided for in ISE Rule 722, Supplementary Material .07(c).

11/30/2016 6:42:38 AM

Trading Incident – 10/28/2016

ISSUE: At approximately 9:30 AM on Friday, October 28, 2016, there was a system disruption on ISE, Gemini and Mercury caused by mitigation processes regarding lack of Away BBO’s (“ABBO”) for new options series.  This new process caused all series with expiration dates of October 28, 2016 to not receive any ABBO data. All series not expiring October 28, 2016 were not impacted.   

The issue was discovered as a result of a trade review that was requested at approximately 10:19 AM on 10/28.

ISE will fix the process for Monday Oct 31, 2016 trading for ISE, Gemini and Mercury.  

RESPONSE:  ISE has halted series with October 28, 2016 expirations for the remainder of the trading day.  Series not expiring on October 28, 2016 were not effected. 

We apologize for any inconvenience this situation may have caused.

Further Information
If you have any questions regarding this bulletin, please contact ISE Technical Support Services at (212)-897-0287, option 1 or write to technicalsupportservices@ise.com

10/28/2016 6:23:24 PM

On May 31, 2012, the SEC approved, on a pilot basis, the National Market System Plan to Address Extraordinary Market Volatility originally filed by the national securities exchanges and FINRA. On April 3, 2014, the SEC approved the Seventh Amendment to the plan, which extended the pilot period to end on February 20, 2015.

At approximately 9:30 AM on Monday, October 24, 2016, there was a system disruption on ISE, Gemini and Mercury caused by a software defect in the ticker plant.  This defect caused some series added for Monday 10/24 to not receive any ABBO data for the entire trading day. 

We are working through a list of trade information to determine which members were affected.  One order was called in for an Obvious Error review at 3:39 PM on 10/24 and was subsequently busted.

ISE will mitigate the issue by halting any new series added for the current trading day at the open and until away market data is available.  Series added the previous day(s) are not impacted.  We are working with the vendor for resolution.

RESPONSE:  ISE has halted new series added for the current trading day at the open and until away market data will be available.  Series added the previous day(s) are not impacted.  ISE, Gemini and Mercury opened at 9:30 AM as normal today.

We apologize for any inconvenience this situation may have caused.

Further Information
If you have any questions regarding this bulletin, please contact ISE Technical Support Services at (212)-897-0287, option 1 or write to technicalsupportservices@ise.com.

0/24/2016 10:49:47 AM

It has come to ISE’s, ISE Gemini’s and ISE Mercury’s (collectively referred to hereinafter as the “Exchanges”) attention that they are not in compliance with rules regarding the handling of Preferenced Orders in a limited number of circumstances involving orders that are allowed to trade though the NBBO.  In accordance with the Exchanges’ rules EAMs are allowed to designate a preferred Market Maker on orders they enter into the trading system (“Preferenced Orders”).  If, among other requirements, the preferred Market Maker is quoting at a price equal to the NBBO at the time the Preferenced Order is received that Market Maker is entitled to enhanced participation rights with respect to the allocation of the executed order.  It has come to ISE’s attention that there are two situations where the ISE’s trading system does not check to see if the preferred Market Maker is quoting at the NBBO at the time the Preferenced Order was received.  For ISE Gemini and ISE Mercury there is only one situation wherein their trading systems fail to do the appropriate check.

Specifically for all three Exchanges, the failure to check to see if the preferred Market Maker is quoting at the NBBO occurs when an Intermarket Sweep Order (“ISO”) as defined in Rule 1900 is preferenced.  In accordance with the Order Protection and Locked/Crossed Markets Plan (“Linkage Plan”) and ISE Rule 1901(b)(4), ISOs (including preferenced ISOs) may be executed when ISE is not at the NBBO.  However, the trading system currently does not check to see if the preferred Market Maker was quoting at the NBBO in determining its allocation.  If the preferred Market Maker had not been quoting at the NBBO when the preferenced ISO was received, but was quoting at the Exchange’s Best Bid/Offer (“IBBO”), then the Market Maker may receive an enhanced participation right to which it was not entitled.

The second situation, which applies only to ISE, occurs with respect to Complex Orders that leg in to the regular market.  ISE Rule 722(b)(3) provides that Complex Orders, including those that are executed against bids and offers in the regular market, can be executed outside the NBBO.  If a Preferenced Order is received that will leg in to the regular market, the trading system does not check to see if the preferred Market Maker is quoting at the NBBO in determining its allocation. Thus, if a Preferenced Order is received that legs into the regular market and the preferred Market Maker had not been quoting at the NBBO when that Order was received, but was quoting at the Exchange’s Best Bid/Offer (“IBBO”), then the Market Maker may receive an enhanced participation right to which it was not entitled.

The Exchanges are currently assessing how to resolve and correct these two situations.  Additional details on potential solutions and an associated timeline will be provided as soon as they are available.

10/10/2016 12:26:55 PM

Trading Incident – 9/16/2016

ISSUE: At approximately 9:40am on Friday, September 16, 2016, a critical Market Data device encountered a software defect, ultimately resulting in a 21 minute halt of the ISE Mercury market.
Because of the possibility of unreliable away market data during the recovery, the ISE Market was halted at 9:54am and re-opened at 10:15am after technical stability was achieved.  As a result of the halt, all participants in the ISE Mercury market were impacted.

ISE will mitigate the issue via configuration changes, which will be performed after market hours this evening.  We are working with the vendor for resolution.

RESPONSE:  All services running on the affected Market Data device failed over to a backup device and fully recovered by 10:07am.  The ISE Mercury market was subsequently re-opened at 10:15am.

We apologize for any inconvenience this situation may have caused.

Further Information
If you have any questions regarding this bulletin, please contact ISE Technical Support Services at (212)-897-0287, option 1 or write to technicalsupportservices@ise.com.

09/16/2016

Trading Incident – 9/9/2016

ISSUE: At approximately 11:48am on Friday, September 9, 2016, a critical Market Data device encountered a hardware failure ultimately resulting in a 20 minute halt of the ISE Market.

Due to unreliable away market data during the recovery, the ISE Market was halted at 12:09pm and re-opened at 12:30pm after technical stability was achieved.  As a result of the halt, all participants in the ISE Market were impacted.

The root cause of this problem has been identified as a hardware failure, which will be addressed after market hours this evening. 


RESPONSE:  All services running on the affected Market Data device failed over to a backup device and fully recovered by 12:23pm.  The ISE Market was subsequently re-opened at 12:30pm.


We apologize for any inconvenience this situation may have caused.

Further Information

If you have any questions regarding this bulletin, please contact ISE Technical Support Services at (212)-897-0287, option 1 or write to technicalsupportservices@ise.com.

9/9/2016

On Saturday, October 15, 2016 ISE will be supporting the inaugural Regulation SCI Industry Business Continuity/Disaster Recovery test. ISE will also be participating in the annual SIFMA Industry BCP test. ISE, ISE Gemini, and ISE Mercury will all be available.

The objective of both these tests is to allow our members and data vendors to connect to ISE from their backup site and perform mock trading.   ISE will be supporting from its Disaster Recovery (DR) data center at 350 Cermak in Chicago.  For those testing, expectations are to establish connectivity from your backup sites and enter predetermined orders. Connectivity and receipt of order and trade confirmations will determine success for participants.  Success criteria apply to both tests. 

While all ISE, ISE Gemini and ISE Mercury members are encouraged to participate, the Regulation SCI test does require mandatory participation from Linkage Order Routers and designated PMMs.  Mandatory participants for each exchange have been notified by ISE’s Market Operations team.

ISE Pre-Testing


In preparation for both tests, ISE will be conducting Disaster Recovery pre-testing on Saturday, October 1 between 9:00 a.m. and 1:00 p.m.  The scope of testing on October 1 will be the same as October 15, stressing connectivity, login, order entry and confirmation receipt. Members who wish to participate on October 1 can connect via PrecISE Trade, FIX and/or DTI. 


Further Information

To register for the October 1st pre-test or October 15th test, or for questions regarding test support, please email ISERegSCITest@ise.com.

If you have not yet officially registered for the October 15 SIFMA Industry Test, pleaseregister here: http://www.sifma.org/services/bcp/industry-testing/

The ISE test script will be distributed directly to the individuals registered and confirmed to participate in these tests from each firm.

08/31/2016

In December 2015, ISE discovered that in certain limited situations, a software error has resulted in the price protections provided for in ISE Rule 722, Supplementary Material .07(c) are not available for a resting market order that is submitted with a “Do Not Trade Through” (“DNTT”) modifier and trades with another complex order.  A fix for the software error has been developed and is in the process of testing prior to implementation.  Originally expected to be completed prior to the end of the second quarter of 2016, the implementation of the fix has been delayed and is currently expected to be implemented by the end of July 2016.  Until the fix is in place, ISE is monitoring on a daily basis trades in vertical and calendar spreads that have resulted from market orders submitted with a DNTT modifier to make sure prices are in line with the price protections set forth in Rule 722.

07/05/2016

It has come to ISE’s, ISE Gemini’s and ISE Mercury’s (collectively referred to hereinafter as “ISE”) attention that in certain limited circumstances ISE has failed to prevent transactions in option series at a price that is lower than a Protected Bid or higher than a Protected Offer as required by the Order Protection and Locked/Crossed Markets Plan (“Plan”) and ISE Rule 1901.  ISE has also failed to conduct surveillance to determine whether its members have engaged in a pattern or practice of impermissible Trade-Throughs in these limited circumstances.

Specifically, when a quote is entered into ISE’s trading system it is not checked against the away markets’ best bids or offers (“ABBO”).  As a result, incoming quotes may trade outside the ABBO.  Unless a valid exception to the Rule applies (see Rule 1901(b) for a list of Exceptions to Trade-Through Liability), an impermissible Trade-Through can occur.  Trading through the ABBO through the use of quotes is a violation of ISE’s Rule 1901 and ISE is now conducting surveillance of such activity.  Although ISE is continuing to review and analyze trading data, it believes that very few impermissible Trade-Throughs have occurred given the timing delays within trading systems and the typical quoting practices of market makers.  It should also be noted that orders are handled differently than quotes—upon entry into the trading system, orders are checked and will not trade outside the ABBO unless a valid exception applies.

ISE is exploring whether a systemic prevention of Trade-Throughs can be developed in these circumstances.  In addition, as indicated above, ISE is currently monitoring these instances of potential Trade-Throughs by generating a surveillance report and analyzing a sample of instances using a mathematical sampling methodology.

06/10/2016

ISE has determined the cause of the software error described below.  A fix is in the process of being developed that will correct this systems compliance issue.  ISE plans to install, test and implement the fix in production by the end of the second quarter of 2016.  Until the fix is in place, ISE is monitoring on a daily basis trades in vertical and calendar spreads that have resulted from market orders submitted with a DNTT modifier to make sure prices were in line with the price protections set forth in Rule 722, Supplementary Material .07(c).

01/08/2016 9:40:31 AM

ISE Rule 722, Supplementary Material .07(c) provides price protection for certain types of complex orders. ISE has discovered that in certain limited situations, a software error has resulted in those price protections not being available for a resting market order that is submitted with a Do Not Trade Through’ (“DNTT”) modifier when it trades with another complex order. Specifically, with respect to vertical spread orders and calendar spread orders, a resting DNTT market order to sell will not be prevented from being executed at a price of less than zero (minus a pre-set value) when trading with another complex order as provided for in the Rule and, with respect to vertical spread orders only, a resting DNTT market order to buy will not be prevented from being executed at a price that is greater than the value of the higher strike price minus the lower strike price (plus a pre-set value) when trading with another complex order. ISE is aware of only one situation in which this error occurred in production; a resting DNTT market sell order was not prevented from paying more than two cents to sell a calendar spread. ISE is currently researching a correction for the software error and will further advise the membership when the correction is in place.

12/21/2015 1:52:47 PM

On Monday, November 9, 2015, the ISE exchange was not processing market data information for products with an underlying that is primary on the Nasdaq equity market only. The issue prevented those products from opening at 9:30 AM ET. Action was taken on the system to recover processing and once that was completed, the products were opened for trading starting at approximately 9:50 AM ET

Since that time, normal process for all products has been restored.

11/09/2015 10:16:05 AM

Beginning Tuesday, November 3, 2015, the compliance date for Regulation Systems Compliance and Integrity ("Reg. SCI"), a new page on the ISE Members Area¹ of the ISE website² will be available (the "Reg. SCI Notices page"). The Reg. SCI Notices page will be the repository for all notices to Members required to be disseminated by ISE and ISE Gemini in accordance with Reg. SCI.

Reg. SCI requires ISE and ISE Gemini to disseminate information to its Members regarding SCI events. SCI events can be Systems Disruptions (events that disrupt or significantly degrade the normal operations of ISE and ISE Gemini SCI systems³), Systems Intrusions (any unauthorized entry into ISE's or ISE Gemini's SCI systems and/or their indirect SCI systems⁴), and Systems Compliance Issues (an event at ISE or ISE Gemini that has caused any of their SCI systems to operate in a manner that does not comply with the Securities Exchange Act of 1934, the rules and regulations thereunder, or ISE's and ISE Gemini's rules, as applicable).

Should a Systems Disruption, Systems Intrusion⁵ or a Systems Compliance Issue occur at either ISE or ISE Gemini, Reg. SCI requires, among other things, that ISE and ISE Gemini disseminate information about the SCI event to their Members. Promptly after it has been determined that a Systems Disruption or a Systems Compliance Issue has occurred, ISE, ISE Gemini, or both Exchanges will post to the Reg. SCI Notices page on the ISE Members Area of the ISE website, a Regulation SCI Notice ("RSN"). The RSN will provide information regarding the type of SCI event, the SCI systems affected by the SCI event and a summary description of the SCI event. Until the SCI event is resolved, ISE will update the RSN with additional information as it becomes known. The additional information will include: (i) a detailed description of the SCI event; (ii) an assessment of the types and number of market participants potentially affected by the SCI event; (iii) a description of the progress of the corrective action being taken in response to the SCI event; and (iv) when the SCI event was resolved or is expected to be resolved.

To view the Reg. SCI Notices page and the Regulation SCI Notices, Members can access the ISE Members Area using their current credentials. Members needing access to the Members Area of the ISE website should visit: https://members.ise.com and click "Not Registered?" to complete a registration form. After the information has been verified, an email will be sent with login credentials.

11/03/2015 8:21:24 AM

³ The requirements of Reg. SCI apply only to SCI systems, which are defined as "all computer, network, electronic, technical, automated, or similar systems of, or operated by or on behalf of, an SCI entity that, with respect to securities, directly support trading, clearance and settlement, order routing, market data, market regulation, or market surveillance."  (See Rule 1000 Definitions of Reg. SCI).    

⁴ Under Reg. SCI, indirect SCI systems are defined as systems of, or operated by or on behalf of, an SCI entity that, if breached, would be reasonably likely to pose a security threat to SCI systems."  (See Rule 1000 Definitions of Reg. SCI). 

⁵ The dissemination requirements under Reg. SCI are different for Systems Intrusions: ISE and ISE Gemini can delay dissemination of information regarding a Systems Intrusion if they believe the dissemination of such information would compromise the security of their SCI systems or their indirect SCI systems or would compromise the investigation of the intrusion.  Also, the information required to be disseminated is limited to a summary description of the intrusion, a description of the corrective action being taken and when the Systems Intrusion is expected to be resolved or has been resolved.